deficit reduction

The Catalan Government has approved 3 new environmental taxes on the air pollution emissions of commercial flights, industrial gas and particle emission, and the nuclear production of electric energy. €50 million are expected to be raised per year once the law will be enforced, which is scheduled for mid-year. The Spokesperson for the Catalan Government, Francesc Homs, has admitted that flights at Barcelona’s El Prat Airport would likely be affected. However, he ensured that none of these 3 new taxes would have a negative impact on the consumers. The law specifies that the tax cannot affect pricing, neither for plane tickets nor for electricity, pointed out Homs. He then put in contrast the €98 million fees an airline can have to pay to the Spanish Airport Authority (AENA) with the €1 million in taxes that may be levied by the Catalan Government.

The Director of Barcelona’s Centre for Regenerative Medicine (CMRB), world-famous scientist Juan Carlos Izpisúa, resigned due to the lack of financial and political support from both Spanish and Catalan Governments. Such news was first published by Spanish newspaper ‘El País’ and then confirmed by sources in the research centre. Internationally, Izpisúa is considered to be one of the most esteemed and learned scientists in the field of stem cells. With the Director stepping down, the CMRB could well lose most of its current projects. Indeed, 18 of the 21 projects are the intellectual property of Izpisúa and might no longer be carried out in the Barcelona-based research centre if Izpisúa quit.

Next to the Spanish Prime Minister Mariano Rajoy (who went to the White House), the President of the United States, Barack Obama, did not talk about Catalonia despite being asked about it directly by a journalist. Obama did not repeat the formula expressed by other international leaders – it is Spain’s internal matter – but instead preferred to avoid the issue. He did not explicitly back the Spanish PM, despite the fact that Rajoy had stated, only a few minutes earlier, that “Catalonia’s independence will not happen”. Rajoy’s meeting with Obama and the following press conference at the White House were also controversial because the Spanish Government banned several media that were covering the trip and only allowed one Catalan newspaper to attend it.

The Catalan Government put 4 buildings up for auction this Friday, following a plan to rationalise the spaces it uses, reduce spending and increase revenue in order to reduce public deficit. The headquarters of the Catalan Finance Ministry, located in a 8,000 square metre Art-Nouveau building in Barcelona’s Rambla Catalunya, has been bought by an Italian pharmaceutical company through FINAF 92 for €23.2 million. The other building, with a surface of 7,200 square metres, was used by the Catalan Police and is located in front of Barcelona’s Ciutadella Park. It has been bought by the German hotel company MO Düsseldorf Immermannstrasse GmbH & CO. KG for €14.1 million. On Thursday, the Catalan Government announced a plan to reduce its office space by 45% in the coming year by concentrating services. The plan includes selling the most attractive buildings.

The Catalan Finance Minister presented on Thursday a ‘Space Rationalisation and Optimisation Plan’ that foresees to partially leave Barcelona’s city centre and set up offices in cheaper areas. Nonetheless, the measure does not include citizen information and care centres such as schools and community health centres. Furthermore, the initiative also plans to reduce the global office space by using previously-empty floors and concentrating services without laying off staff. The objective is to pass from holding 377,000 square metres to fully occupying 207,000 square metres, a 45% reduction. By doing so, the Catalan Government expects to reduce rents by a 20% average, to cut off indirect costs by 50% and to decrease energy spending by 30%. Furthermore, it will sell the most appealing buildings.

The Catalan Executive considers the Spanish Government’s decision not to pay them the money corresponding to the revenue from the tax on bank deposits in 2013 “very bad news”. On the 18^th December 2012, the Catalan Executive approved a tax on banks’ global deposits (not on personal deposits) with a general rate of 0.5% but with many reductions. Such a tax already existed in Andalusia, Extremadura and the Canaries. Nine days later, the Spanish Government approved its own tax, but at a 0% rate, therefore not collecting any money but cancelling de facto the Autonomous Communities’ tax. When this happens, the Spanish Executive is legally obliged to compensate the regional government, transferring the equivalent money. Madrid did so with the others, but not with Catalonia. Such a tax would have generated €800 million in revenue in 2013.

On Monday the People’s Party (PP) announced they were considering freezing the 2014 Catalan Government’s budget of €29.31 billion. The reason is that they include €5 million (0.017% of the total spending) to fund “electoral processes and citizen consultations”, which they fear could fund a self-determination vote. The Catalan Government has the power to organise a consultation process, as well as to modify small items once the budget is approved. The PP was waiting for the Spanish Finance Minister’s green light, since blocking the budget’s approval could have consequences on the objective to reduce public deficit and on meeting the targets imposed by the EU. Cristóbal Montoro argued that, since the blocking would “only last some 30 days”, there is no such danger.

Trade unions and the two associations of municipalities in Catalonia have issued a joint manifesto to protest against the Spanish Government’s Local Administration Reform. This reform recentralises powers and services, reducing the municipalities’ capacities and transferring resources to the Provincial Councils, political bodies associated to Spanish centralism and whose members are not directly-elected. The manifesto criticises the Spanish Government “for not having faced any significant reform of its heavy structure”, despite managing 53% of Spain’s public expenditure. The Spanish Government is also forcing the Autonomous Communities to reduce their services and structures.

Thousands of people – 12,000 according to Barcelona’s local police and 200,000 according to the organisers – demonstrated on Sunday in the streets of Barcelona to protest against the Spanish and Catalan Governments’ austerity measures and “antisocial” budgets. Led by the platform ‘Prou Retallades’ (“Stop Budget Cuts”) , the UGT and CCOO trade-unions, as well as political parties and associations, citizens voiced their disapproval of the new pension reform, working fragility and the latest austerity measures. They also specifically protested against the Catalan and Spanish Governments’ budgets for 2014, which they consider “antisocial”. The demonstration organisers criticised the “blind obedience” of the Catalan and Spanish Executives to the European Commission and the Troika.

The Spanish Finance Minister, Cristóbal Montoro, “regretted” on Tuesday evening the “confusion” about having announced in October he was cancelling a €1.76 billion transfer to the Catalan Government. Without this scheduled payment, the Catalan Executive is having serious problems to fund the 1.58% deficit approved for 2013. “These things can happen” said Montoro. In late October – 10 weeks before the end of the year – the Spanish Minister announced that the Catalan Government would not receive the €1.76 billion requested from the Liquidity Fund for the Autonomous Communities (FLA) since this money would be used by the Service Provider Fund to pay for arrear invoices. A week ago, the Catalan Government confirmed Montoro would transfer the €1.76 billion.

The Catalan Executive says it has the Spanish Government’s commitment to send the €1.76 billion that the Spanish Finance Minister, Cristóbal Montoro, announced in late October would not be transferred. This money corresponds to the loan to fund the Catalan Government’s deficit target increase from 0.7% to 1.58% in 2013 approved in July by the Spanish Executive. However, in late October – 10 weeks before the end of the year, Montoro said that this amount would be deducted from the fund to pay the Catalan Government’s service providers. This meant that Catalonia was missing €1.76 billion to fund public services and departments for the last part of the year. Negotiations during the last 4 weeks have modified Montoro’s October decision.

The Catalan Government has presented its budget proposal for 2014, which posts a 1% deficit, representing a 35.5% annual reduction and amounting to €1.98 billion, in line with the 2014 deficit targets imposed by the Spanish Government. The budget prioritises healthcare, education and social policies, which represent 71% of the total non-financial spending. Non-financial spending grows by 0.2% and reaches €20.30 billion, while the total spending amounts to €29.31 billion. The Catalan Finance Minister stressed that spending had not been reduced this year since in the last 3 years it had already dropped by 22%. Budget cuts “have reached their limit”, as otherwise “social cohesion” and “the Welfare State” would “be at risk” he said. In 2014 the Catalan Executive will spend the same per inhabitant as it was doing in 2004 taking into account inflation (€1,901).The adjustment for 2014 focuses on increasing revenue by €3.2 billion, mostly through new taxes (€910 million) and the sales of assets and privatisations (€2.32 billion). On top of this, the Catalan Government forecasts a 0.9% economic growth for 2014, leaving behind the recession of 2012 (-1.2%) and 2013 (-1.1%).

During the first two thirds of 2013, the Catalan Government deficit amounted to €2.05 billion, equivalent to 1.06% of Catalonia’s GDP. The figure corresponds to 67% of the 1.58% deficit target imposed by the Spanish Government to the Catalan Executive for the whole year 2013. Meanwhile, the entire Spanish public sector posted a deficit corresponding to 5.07% of Spain’s GDP in the same period, although data from municipalities is still pending to be included. The figure already represents 78% of the total 6.5% deficit target that the European Union allowed Spain for the entire year 2013.

The Spanish Government has sent a Budget Plan to the European Commission, following the new rules giving Brussels greater control on Member State finances. The plan’s scope includes all government levels in Spain. In the plan, the Spanish Government imposes a global budget adjustment of €8 billion on the Autonomous Community governments, including Catalonia’s, to be achieved within the next two years. €2.14 billion would come from increasing revenue next year, since Madrid considers that the Autonomous Communities can still increase their own taxes, particularly those linked to the environment. €1.93 billion would come from further budget cuts. This would total €4.07 billion in 2014, which would roughly be repeated in 2015.

The Catalan Government will receive €1.7 billion less from the Spanish Liquidity Fund (FLA) in 2013 than had been previously foreseen. The news was announced by the Spanish Government in mid-October, with only 10 weeks left before the end of the year. Madrid has justified the decision by linking the FLA to the plan to lend money to public bodies in order to enable them to pay suppliers. The money to pay suppliers will now be deducted from the FLA, changing the previous conditions. As a consequence, the Catalan Government will not be able to fund the 1.58% deficit it had allowed, since the FLA is its only access to liquidity. Now, Catalonia will only have money for the previously-foreseen 0.7% deficit. The Catalan Executive feels “tricked” as “it is not understandable that the Spanish Government agrees to a greater deficit and later cannot fund this deficit”.