tax on bank deposits

The Constitutional Court has accepted to debate the Spanish Government's last appeal against the Catalan Executive's tax on bank deposits, which has to be paid by financial entities. Such a decision represents the automatic cancellation of the tax for an initial period of 5 months. Catalonia approved such a measure in December 2012 and two weeks later, the Spanish Government approved its own tax with a 0% rate, so it was 'de facto' cancelling the regional taxes. However, instead of compensating Catalonia for having cancelled the tax – as it is legally obliged to do – the Spanish Government refused to do so, since it argued that the tax had not entered into force yet and took the issue to the Constitutional Court. The Court initially accepted the Spanish Executive's appeal and the tax was temporarily suspended, but in May 2013 it was lifted. In July 2014, the Spanish Government modified the tax with a 0.03% rate and in December it presented a new appeal against the Catalan tax, which brought in some €680 million in 2014.

The Catalan Government presented on Tuesday its budget proposal for 2015, which has a €22.48 billion spending but only a €19.98 billion revenue. The Catalan Finance Minister, Andreu Mas-Colell, insisted that spending cannot be further reduced since no further budget cuts can be implemented without seriously damaging public services. In fact, the current budget keeps social spending levels of 2014, which represent 71.2% of the new budget. In addition, public employees' full salary will be restored, after it had been lowered for the last 3 years. The 2015 budget posts a 0.7% deficit (€1.44 billion). However, there is a €2.5 billion difference between spending and revenue that should mostly be covered with €2.19 billion from Spanish Government's pending debts. However, Mas-Colell does not rule out being granted a higher deficit target, since the current one is "unfair" and is not in line with the Catalan Government's austerity measures already adopted. Furthermore, the Spanish Government has reduced funds from the regular funding scheme by 10.7% between 2013 and 2015, a €2 billion reduction, despite the economy is recovering. 

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.

The Spanish Prime Minister, Mariano Rajoy, has confirmed that “in theory” the Spanish Government will implement a tax on bank deposits in 2014 – taxing the global amount of deposits and not individual ones. The revenue from this tax will be transferred to the Autonomous Communities. Furthermore, Rajoy stated that he “is studying” the question of compensating the Catalan Government financially for not having allowed them to implement such a tax in 2013. Catalonia approved a tax on bank deposits for 2013 in December 2012, aiming to collect €500 million per year. However the Spanish Executive approved its own tax a few days later, but at a 0% rate, de facto cancelling Catalonia’s. Despite the fact that Madrid has been compensating Andalusia, Extremadura and the Canaries for the same tax, it refused to compensate the Catalan Government.

The Spanish Constitutional Court has lifted the temporary suspension of the Catalan Government’s tax on total bank deposits while it is waiting to issue a sentence on the measure. The Spanish Government took Catalonia’s tax on bank deposits, the drug prescription fee and the new judicial taxes to the Court. The Constitutional Court accepted Madrid’s appeal in January and temporarily suspended the implementation of the three measures for five months. After the period is over, the Court believes that, taking into account the need to reduce public deficit, the Catalan Government can now implement the tax on banks, while the magistrates agree on a definitive sentence. However, the Court has extended the suspension on the judicial and drug prescription fees.

The Spanish Government is keeping most of the 4.5% public deficit allowed to the entire Spanish public sector in 2013 for itself, despite managing only 50% of the total public spending. It has allowed itself a 3.8% deficit while it has imposed a 0.7% target on the regional governments, which manage almost 40% of the public spending including basic services such as healthcare and education. The European Parliament report indirectly asks Madrid to relax the Autonomous Communities’ deficit targets according to the basic services they provide. In addition, it also states that regional governments should have greater fiscal capacities and depend less on central government transfers. Furthermore, the report asks “some member states” to eliminate the ministries whose powers have been devolved and to “reduce unnecessary defence expenditures”.

The Constitutional Court has accepted the Spanish Government’s appeal against three measures adopted by the Catalan Executive to reduce its deficit, some of them negotiated last spring with the People’s Party (PP). The Spanish Government, which is run by the PP, now believes that these measures invade its own powers, “break market unity” and go against the principle of “equality for all Spaniards”. While accepting the appeal, the Court has temporarily suspended the application of the fees and taxes for a five-month period, which could be extended. The Catalan Government will appeal the decision as it believes the measures to be in line with the Constitution and within its jurisdiction. The drug prescription fee brought in €46 million in its first 6 months and it reduced public spending on medicines.

The Centre-Right Catalan Nationalist Coalition (CiU) and the Left-Wing Catalan Independence Party (ERC) have reached a definitive agreement ensuring the next Catalan Government parliamentary stability to approve the main laws. The CiU leader Artur Mas will be re-elected President of the Catalan Government with the ERC’s vote in the Catalan Parliament by the end of the week. However, the ERC will not sit in the Cabinet and will only offer support on the agreed issues. The last point blocking the agreement was the CiU’s refusal to set a specific date for a self-determination referendum. Finally, they have agreed on calling for a citizen vote on Catalonia’s independence from Spain in 2014. However, the CiU has managed to include a clause postponing the voting call if both parties explicitly agree to do so.

With this decision, the Catalan Government wants “to safeguard” its power to adopt this type of tax or the equivalent revenue, after the Spanish Government announced the creation of its own tax while keeping it at 0% to prevent the Autonomous Communities from approving it. The Constitutional Court has already backed the taxes on bank deposits created by Extremadura, Andalucía and Canarias. Catalonia’s tax will not affect clients but only the banks. It will affect all banks operating in Catalonia, independent of where they are based. In addition, it will have retroactive effects as from the 30th of November. The Spanish Finance Minister warned that the Spanish Government will fully oppose it.