fiscal deficit

The President of the Catalan Government, Artur Mas, officially announced on Tuesday that last year’s budget will be extended for the whole of 2013, since the 1.58% deficit target imposed by the Spanish Executive is too low and arrives too late. However, he explained that the budget extension guidelines will meet the 1.58% deficit target, because otherwise they would not have the money to pay for the additional spending. Furthermore, Mas announced they will take the “unfair and illegal split” of the deficit targets among the different government levels to court, since they consider the Spanish Government has not done it “in a proportional way”, since it keeps most of the deficit allowed for Spain’s total public sector for itself. Some opposition parties have strongly criticised the Catalan Government for extending the budget.

The Catalan Finance Minister, Andreu Mas-Colell, accuses the Spanish Government of “asphyxiating” the Autonomous Communities. The 1.58% deficit target imposed to the Catalan Government represents €2.6 billion of further budget adjustment compared to last year’s budget, which ended with a 1.96% deficit. Mas-Colell denounced that the Spanish Executive is “keeping for itself the greatest share of the deficit pie”, while it is only responsible for 50% of Spain’s public spending. The Spanish Government is setting itself a deficit target of 5.2% for 2013 and most of the flexibility allowed by the European Union, which authorised a 6.5% deficit for Spain’s total public sector. Meanwhile, the Autonomous Communities have a deficit target 4 times stricter, although they manage 36% of Spain’s total public spending as well as basic services such as healthcare and education.

The Catalan Executive has published the liquidation of Spain’s fiscal redistribution scheme of 2011. That year, Catalonia was the 3rd Autonomous Community paying the most taxes per citizen in Spain, with a 119.1% rate if the average were 100%. However, after the Spanish Government’s redistribution of money through services and investments, Catalonia was the 10th territory in spending per capita, with a 99.4% rate, below the average. In 2011, Catalonia received €16.91 billion, 3% less than in 2010. The region of Madrid was the Autonomous Community paying the most, since Spanish Government bodies and many multinational companies are based there. It was followed by the Balearic Islands, which received 12.3 million tourists while its population is just 1.1 million.

On Tuesday, the Spanish Finance Minister, Cristóbal Montoro, stated before the Senate that the Spanish Government “was financing the services” the Catalan Executive provides. In an angry and agitated tone, Montoro concluded the intervention shouting “Do you understand?! Don’t you understand?!” to the Catalan Senator who had asked him about the recentralisation of power. The President of the Catalan Government, Artur Mas, answered the Spanish Finance Minister in a calm but angry tone: “the Catalan Executive finances public services thanks to the effort Catalan citizens make each day by producing, working and paying taxes. And from all the taxes paid by Catalan citizens, a large amount, as much as €16 billion leaves Catalonia and never comes back [after the Spanish Government’s redistribution]. Who the heck is funding whom? It’s Catalonia that funds the Spanish State from many points of view”.

According to the current legislation, the Spanish Government has to invest 18.9% of its total transport infrastructure budget in Catalonia between 2007 and 2013 in order to compensate for an historical lack of such investments. However, according to the Spanish Transport Ministry’s budget execution reports and the projections made by the Chamber, the Spanish Government is far from honouring this legal obligation. Not only have investments in Catalonia not increased in relative terms, but they have been reduced to a “historical minimum”. While the planned budget for transport investments has been reduced by an average of 36% throughout Spain due to the economic crisis, in Catalonia it has dropped by 50%. Furthermore, 87% of the planned budget was executed throughout Spain, while in Catalonia Madrid only executed 68% of it.

On Tuesday, the Catalan Government posted the so-called fiscal balances for 2010, showing the difference between the money paid by Catalans in taxes and fees to the Spanish Government and what comes back in form of funds, services and infrastructure. Using the monetary flow formula, Catalonia had a fiscal deficit of €16.54 billion, representing 8.5% of its GDP. Using the benefit formula, the fiscal deficit represents 5.8% of the Catalan GDP (€11.26 billion). The Catalan Finance Minister, Andreu Mas-Colell, stated that both formulas “are complementary” but he found the monetary flow one to be closer to the reality. The figures are similar to the results from previous years as well as to the study published in 2008 by the Spanish Finance Ministry with data from 2005. In the last 25 years, Catalonia has given away 8.1% of its GDP each year.

The deficit target for Spain’s entire public sector has also been raised from 4.5% to 6.3%. The Spanish Government has kept 81% of the deficit for itself while it is only responsible for 50% of Spain’s public spending. The Spanish Government has allowed itself a 5.1% deficit target, while the Autonomous Communities are only allowed a target of 1.2%. The regional governments fund the basic welfare state services and manage more than 35% of Spain’s total public spending. The Catalan Government welcomes the revision but considers it not to be enough. The Catalan Finance Minister, Andreu Mas-Colell, has been insisting that the Autonomous Communities should have at least a third of the total deficit. Therefore, with an overall target of 6.3%, the Catalan Executive should have a target at least 2.1%.

In a symbolical action, 11 town halls have handed in their monthly taxes to the Catalan Tax Agency and not to the equivalent Spanish entity. The Catalan Government’s body stated that it is legal, since later they will transfer the money to the Spanish Tax Agency. However, with this action, the town halls involved wanted to lend their support to “Catalonia collecting its own taxes”. In fact, the Catalan Government collecting all the taxes in Catalonia is widely asked for by a majority of the Catalan society. This week the Catalan Executive announced a programme supporting the development of its own Treasury, in order to provide the Catalan Tax Agency with muscle and experience. Furthermore the Association of Pro-Independence Town Halls asked its members to stop paying their taxes to the Spanish Tax Agency and switch to the Catalan one instead.

The Spanish Finance Minister, Crístobal Montoro, confirmed that if Brussels relaxes Spain’s total deficit target for 2013, he will share this flexibility with the Autonomous Communities’ governments. A working group has been created to analyse the most convenient formula for this, including that of setting different deficit targets for each Autonomous Community. The Catalan Government celebrated the decision, since it has been asking for it for many months. In addition, the Catalan Finance Minister, Andreu Mas-Colell, stated that he will look for “a smooth relationship” with the Spanish Executive to negotiate the details. On Wednesday, Mas-Colell proposed the idea that deficit targets could be set according to debt levels. In the last few days, the Catalan Government has sent several messages in order to show a willingness to talk to Rajoy’s cabinet about the most important subjects on the table.

The Catalan Finance Minister, Andreu Mas-Colell has announced that the Catalan Government had a public debt of €50,948 million on the 31st of December, 2012. Catalonia’s debt has increased by €16 billion in only 2 years due to the financial crisis. Furthermore, in 2013, the Catalan Government will have to pay €2.2 billion in interest on the debts – equivalent to 8% of its budget and 1% of Catalonia’s annual GDP. Catalonia has been a net contributor to the European Union for decades and has been paying around 8.5% of its annual GDP – equivalent to €17 billion – every year for services and infrastructure in the rest of Spain. Despite this fact, the Catalan Government does not receive enough money from the Spanish Executive, which raises most of the taxes and distributes revenue among Autonomous Communities.

If the Spanish Government had honoured its legal commitments and did not “centrifuge the deficit” towards the Autonomous Communities, the Catalan Government would have ended 2012 with a deficit of 1.53%, according to the Catalan Finance Minister, Andreu Mas-Colell. Instead, the Catalan Government had a deficit of 2.3%, 0.8 percentage points higher than the 1.5% deficit target. In any case, Catalonia’s deficit still decreased from 3.99% in 2011 to 2.3% last year, a reduction representing €3.48 billion, despite the recession, the consequent drop in tax collection and paying €1.72 billion in debt interest. In the last 2 years, the Catalan Government has reduced its expenditure by €4.2 billion, representing a daily reduction of €5.7 million.

Pimec, the main SME association in Catalonia, issued a survey taken of its members. Two thirds of the interviewees would support Catalonia’s independence from Spain while remaining in the European Union. 21.1% would prefer a more federal Spain and only 12.1% would back the current situation. In addition, 97.5% of the interviewees support improving Catalonia’s fiscal scheme. Furthermore, 61.2% think a hypothetical boycott of Catalan products by Spain would not or would hardly affect them.

The Catalan Government increased the amount initially requested from the Spanish Government Liquidity Fund for the Autonomous Communities (FLA) adding €410 more million in order to include payments to service providers and local councils. The Spanish Government and the Catalan Executive have included more types of payments eligible for receiving funds from the FLA. At the end of August the Catalan Government requested €5.02 billion to pay for debt maturities and some ordinary payments. At the same time, the Spanish Government does not respect investment agreements in Catalonia and ensures that Catalan citizens suffer from a permanent fiscal deficit calculated to be some 8.5% of the GDP (around €17 billion).

An official study issued by the Catalan Finance Ministry shows that Catalan citizens have given €24.77 billion more to the Spanish pension and unemployment funds than they have received back from it. The study takes into account the contributions of Catalan citizens and companies between 1995 and 2010. Without the Catalan contributions, the Spanish Social Security system would have had a €86.33 billion deficit in the same period. The Catalan contribution to the Social Security system was negative in 1995-1996 and 2009-2010, while between 1997 and 2008 it showed a budget surplus. Without Catalonia, Spain’s Social Security would have only had a budget surplus between 2003 and 2007.

The Catalan Government’s Spokesperson, Francesc Homs, ruled out the Spanish Executive deciding to delay the payment as an answer to Catalonia’s self-determination process, as it would be “malfeasance”. However, he was angry about the €24 million fine the Spanish Government has issued against the Catalan Executive for delaying Social Security payments. Homs considered this delay to be a consequence of not receiving the €568 million on time and announced an appeal to the Constitutional Court. The Catalan Government had requested €568 million weeks ago from the Spanish Government’s Liquidity Fund for the Autonomous Communities (FLA) to face some of September’s payments. However the amount did not arrive on time and payments to private healthcare, education and social centres receiving public funds were delayed.