tax

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 new tax would not affect individual citizens neither would it be implemented in areas without housing demand. The tax aims to put apartments and houses, owned by banks and real estate companies that remain empty despite being in areas with a demand for housing, back on the market. The expected effect is an increase in the amount of housing on offer in those areas and to make renting cheaper. The Catalan Minister for Public Works, Santi Vila, announced the new tax on Monday morning. A few hours later, the Catalan President confirmed they are considering it, although no final decision has been made. The Left-Wing Catalan Independence Party (ERC) stated that the measure was part of the agreement reached with the Centre-Right Catalan Nationalist Coalition (CiU).

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 Cercle d’Economia, the main Catalan economic forum open to businesspeople and academics, has published an opinion note on the political context following the last Catalan elections. In the note, the Cercle asks the Spanish Government “to talk” about the Catalan self-determination and “to reform” the Constitution accordingly. The Cercle does not explicitly back an independent Catalonia but it supports a deep reform of Spain’s territorial organisation and the finding of a negotiated solution for both parties, which may be reached through a legal referendum. In addition, the Cercle asks for a review of Spain’s internal distribution of the deficit targets among government levels and to increase those of the Autonomous Communities.

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 Catalan Government has created a Treasury Secretariat within its Finance Ministry, which will be in charge of managing revenue, with the objective of developing Catalonia’s own tax office. The creation of a treasury of its own would allow the Catalan Executive to collect all the taxes generated in Catalonia, as Navarra and the Basque Country have been doing for decades. It is one of the electoral promises of the governing Centre-Right Catalan Nationalist Coalition (CiU) and is also part of the parliamentary stability agreement reached with the Left-Wing Catalan Independence Party (ERC). A Catalan tax office collecting all the taxes is an historical claim of a large part of the Catalan society. However the Secretariat created is in line with the CiU’s strategy of creating state structures and it has been criticised by the pro-Spanish unity parties.

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.

Holding the self-determination referendum before 2015 and certain aspects of the fiscal policy are the final obstacles to a definitive agreement between the Centre-Right Catalan Nationalist Coalition (CiU) – which won the elections but lost support – and the Left-Wing Catalan Independence Party (ERC) – which is the second largest party now, having doubled its support. After two and half weeks of negotiations, the ERC will vote for the CiU leader, Artur Mas, to be re-elected as President of the Catalan Government. However, the ERC’s stable parliamentary support – since it will not directly be part of the Cabinet – is not granted yet. Party leaders met on Friday to seal the agreement, but differences persist and the date for the re-election debate is approaching.

As part of the strategy to create state structures and to get a new fiscal agreement between Catalonia and Spain, the Catalan Government and the four Provincial Councils, all run by the Centre-Right Catalan Nationalist Coalition (CiU), have created the embryo of Catalonia’s Treasury. They will merge exiting structures, in terms of facilities, staff and resources, to create a single body to collect all taxes at local and Catalan level at no extra cost. The pillar for the future Catalan Treasury’s formal birth ceremony comes the day before the crucial meeting between Catalonia’s President, Artur Mas, and the Spanish Prime Minister, Mariano Rajoy. Rajoy has already said he will not accept a specific fiscal agreement for Catalonia.

The Catalan Ministry of Finance has confirmed the figures released on Thursday by the party running Catalonia’s Government. The drug prescription fee would add €180 million to the budget, and will also save money due to its dissuasive impact. The symbolic tourist tax, which will be implemented from November, would also bring in €60 million. The remaining €60 million will come from other taxes and public fees.

The Centre-Right Catalan Nationalist Coalition ‘CiU’, which runs the Catalan Government, is close to reaching an agreement with the Conservative People’s Party (PP) on this year’s budget. They have been negotiating over the past number of weeks, but the PP has insisted on modifying two of CiU’s new measures: the tourist tax and the drug prescription fee. They have subsequently agreed to postpone the tourist tax until November 2012 and Barcelona will have a different fee. In addition, they have decided to exclude people with low incomes from paying the drug prescription fee.

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.

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.