deficit reduction

The Catalan Government had already approved a 3% reduction of public salaries during the current year, which will now be increased to 5%. However, the President of the Catalan Government, Artur Mas, explained that the measure would be cancelled if the Spanish Government approved a similar reduction, in order not to harm public employees with two salary reductions. The People’s Party supports Mas but the Left-Wing opposition parties have criticised the measure and have said that there are other ways to reduce the deficit. Mas demanded that the Spanish Government include the funds it legally owes Catalonia in its budget for 2012 which would avoid further cutbacks.

“Absurd, useless, dreadful, and inopportune” is what Spain’s Finance Minister thinks about the Catalan Government’s proposal to internally split the 5.8% deficit target for 2012 more proportionally. The Catalan Government has asked for the Autonomous Communities’ deficit to increase from 1.5% to 1.7% of Spain’s GDP, and the deficit generated by the services directly managed by the Spanish Government to fall from 4% to 3.8%. The Spanish Government believes that it has already undertaken severe austerity measures and that now it is the turn of the Autonomies.

There has been a unanimous call in Catalonia for greater flexibility of the deficit objectives applied to the Autonomous Communities for the current year. Every political party in Catalonia, including the People’s Party (PP), has asked the Spanish Government to provide more flexibility to the Autonomies, which manage 40% of Spain’s public spending and run basic Welfare State services. The Spanish Government has set a new deficit target of 5.8% of Spain’s GDP for 2012; internally, the Central Government allowed itself a deficit of 4% and ordered the Autonomies to commit to a deficit of 1.5%. Some Catalan parties have said that the Spanish Government has double standards.

The Catalan Government considers the Spanish Government to be “disloyal” for unilaterally setting the new deficit objectives and for not allowing the same degree of flexibility to the autonomous communities, who manage all basic services. The Autonomies’ new deficit target has been set at 1.5% while that of the Spanish Government is set at 4%. Mariano Rajoy has announced that Spain will have a total public deficit of 5.8% of its GDP, and not the 4.4% previously agreed with the rest of the European Union Member States. Rajoy has argued that, with a recession coming, the situation has changed and the stability pact foresees changing the targets.

The salary drop is to be added to the 5% cutback in 2010 and the 2011 salary freeze despite the increase in inflation. Trade unions denounced that since May 2010, Catalan public employees have lost 20% of their purchasing power. In addition, trade unions have abandoned negotiations as they say the Catalan Government is imposing the measures. The Vice President, Joana Ortega, stressed that the measure is “temporary”, in principle only for 2012; however she did not discard the idea of repeating it in 2013 if the economic situation requires so. The measure will save €180 million this year, which is part of the €625 million package to be saved that affects public employee labour conditions.

The lack of satisfactory offers has forced the Catalan Government to postpone its plan of selling several buildings off for cheap and losing money. Selling real estate assets is one of the ways the Catalan Government hopes to increase revenue and reduce the public deficit. Since none of the offers reached the minimum expected, the Government has decided to wait and postpone the sale.

The Spanish Government stressed that no Autonomous Government will be left disappointed if they have a “responsible” attitude and have an austerity plan in place. However, those failing these measures could be intervened the same way “the European Union” has done with countries such as Greece and Ireland, but without “having their powers taken away”, clarified the Spanish Finance Minister, Cristóbal Montoro. The Autonomous Community governments have renewed their 1.3% deficit objective for 2012 and the Spanish Government has offered additional tools to raise funds and solve liquidity issues. The Catalan Finance Minister, Andreu Mas-Colell, has met bilaterally with Montoro to foster cooperation and discuss the Catalan Government’s claims about the €2.2 billion the Spanish Government owes Catalonia.

The Financial Times has published an interview with the President of the Catalan Government, Artur Mas. The Financial Times stressed Mas’ request for a new deal between Spain and Catalonia, which would reduce Catalonia’s contributions to the rest of Spain by half. The FT explained that between 8% and 9% of the annual Catalan GDP, which represents between €17 billion and €18 billion per year, goes to the rest of Spain to pay for solidarity funds for poorer regions. The newspaper also praised the “pioneering” austerity measures implemented by the Catalan Government.

Catalonia already approved its own spending limit through a law of its own last September. The Spanish Vice President, Soraya Sáenz de Santamaría, explained that the new Budget Stability and Sustainability Law will introduce “mechanism corrections” and “almost automatic” sanctions for public administrations that do not meet the deficit objectives. In addition, before approving their budget, the Autonomies and large city town councils will have to commit to a spending limit and present detailed reports on several aspects of the budget. However, she stressed that each autonomous government will have the freedom to allocate resources.

The Spanish Finance Minister, Cristóbal Montoro, announced that the Central Government might heavily fine the governments of Autonomous Communities that do not meet the deficit objective. Montoro, from the People’s Party (PP), met with the regional governments run by his party to prepare a common position on the issue. On the same day, the Centre-Right Catalan Nationalist Coalition (CiU) gave its support to the Spanish’s Government decree to cut public spending and increase taxes, announced at the end of December.

Despite a 4.6% reduction in revenue, the Finance Department has been able to cut spending by €283 million when compared to 2010. The government had a deficit of €3.798 billion in the eleventh month of the year, equivalent to 1.9% of GDP. The aim of the Catalan Government is to close 2011 with a 2.66% budget deficit.

The Catalan Government will reduce department expenditure by 3.8%, public sector prices will increase and real estate assets will be sold. In addition, a symbolic tourist tax and a universal fee for each drug prescription will be introduced. The Catalan Finance Minister, Andreu Mas-Colell, insisted that next year’s budget continues with the two-year adjustment plan, which has been designed to reach a 1.3% deficit objective in 2012. Basic welfare services and security and judicial policies are the areas least affected by the reductions. In the next few weeks, parliamentary negotiations will take place to approve the final budget.

Public employees have taken to the streets to put pressure on the Catalan Government during the negotiation of next year’s budget. The Government proposed 19 measures affecting public employees and aimed at saving €625 million in 2012. They include salary reductions, modifications in working conditions and review “of temporary staff”. Negotiations began on November 30th and, despite some temporary suspensions, they are on-going. The Catalan Government wants to close a deal as soon as possible, and unions want to keep negotiating until next year’s budget approval.

The Spanish Government refuses to transfer some of the funds that it is legally obliged to pay Catalonia in 2011. Without this money, the Catalan Government will have difficulties meeting the deficit objective for this year. The Catalan Minister for Finance, Andreu Mas-Colell, considers the stance of the Zapatero Government to be “rude” and ignorant to the needs of Catalonia. Furthermore it forces the finances of Catalonia to be put in the spotlight. Every single Catalan political group, including the Socialists and the People’s Party, have criticised the decision of the soon to be former Spanish Prime Minister, and have expressed their support for Mas-Colell.

On Tuesday, the Catalan President announced a series of measures that will be included in the 2012 budget in order to meet the 1.3% deficit objective. The Catalan Finance Minister said that the fall in public spending will be smaller than that of this year. Ministers from the Catalan Government have been providing more details about the measures. The so-called “moderating ticket” to reduce the Catalan public healthcare system’s pharmaceutical bill has been questioned by the Spanish Government, as Barcelona “does not have the powers to do so”, despite managing the public healthcare system in Catalonia.