Monday, August 4, 2014

The Spanish Government downplays Catalonia's fiscal deficit and rejects reviewing its funding

On Tuesday, the Spanish Finance Minister, Cristóbal Montoro, rejected to review the funding scheme of the Autonomous Communities to grant them more resources, despite the fact that the Catalan Government is under-budgeted. On Wednesday, the Spanish Finance Ministry downplayed Catalonia's fiscal deficit by issuing the so-called fiscal balances, which calculate the inter-territorial fiscal transfers (how much money is raised in taxes and how much comes back in terms of public investments and services) and posting a significantly low Catalan contribution. According to the Spanish Government's new calculations, whose new methodology has been designed for the occasion, Catalonia gave away €8.46 billion in 2011, representing 4.35% of its GDP. The figure is significantly lower than the Catalan Government's calculations: €15.01 billion and €11.09 billion, based on two complementary methodologies used by the Spanish Executive in 2008 and agreed among independent university experts.


Catalonia had a €8.46 billion fiscal deficit according to Madrid and a €15.01 billion one according to Barcelona

Angel de la Fuente presenting the new fiscal balances,
calculated with a new methodology for the occasion
According to the Catalan calculations, Catalonia's taxpayers gave away €15.01 billion in 2011 (7.7% of the GDP) using the monetary-flow formula, or €11.09 billion using the tax-benefit one (5.7% of the GDP). The two formulas are complementary, although they show different realities. However the first one is more widespread and is considered by experts to be more accurate in times of economic crisis. The second one is based on a greater number of assumptions and therefore it relies on a greater degree of interpretation. The first formula takes into account investments, services and grants specifically delivered in a given territory, including an estimate of the centralised services (such as the army). The second formula makes an estimation of the benefits that all the services and investments in the country (not only in a specific territory) have for the citizens living a given territory. For instance, with the second formula, a railway built near the border with Portugal is considered to be also beneficial for citizens living near the French border in Catalonia, in the other side of Spain. However, this formula does not take into account the benefits of a railway built on the French side of the border.

The Spanish Government designs a new methodology just for the occasion

The Spanish Government's figures have totally ignored the monetary flow formula that is traditionally posting higher fiscal deficits for Catalonia. In fact, using this formula, Catalans have given away an average of 8% of Catalonia's GDP (equivalent to €15.5 billion using 2013 money) each year since 1986. The Spanish Government not only ignores this fact but they have also modified the calculation method used by the Spanish Executive in 2008, when it calculated the fiscal balances from 2005. Back then, the Spanish Government stated that Catalonia had a fiscal deficit between 6.38% and 8.70% of its GDP, depending on the formula used, similar figures to those issued by the Catalan Executive.

Fiscal balances designed to counter-act the support for independence

Furthermore, the fiscal balances published this Wednesday come with a seven month delay despite Catalonia's business community pushing to have such figures earlier. Montoro decided to change the methodology arguing that fiscal balances "are used by pro-independence supporters" to argue that Catalans pay far more than what they receive from the Spanish Government. A few months ago, he explained that the new calculation will show the "territorialised accounts", which will show the cost of services per inhabitant in each Autonomous Community. According to Montoro's new calculations, each Catalan gave away €1,119 in 2011, while the Catalan Government's calculation showed a figure of €2,055.

With Montoro's new methodology designed for the occasion by the economist Angel de la Fuente, who is very vocal against Catalan nationalism and has been directly appointed by Montoro, Catalonia's fiscal deficit is significantly lower than the Catalan Government's calculation. According to De la Fuente, in 2011, Catalan taxpayers contributed €8.46 billion to fund services, investments and grants in other parts of Spain, an amount representing 4.35% of Catalonia's GDP. The figure comes from the €9.365 billion the Spanish Government raised through taxes in Catalonia that year and the €910 million it spent there, according to the "territorialised accounts".

With Montoro's calculations, Madrid has a €16.7 billion fiscal deficit

The region of Madrid is instead the Autonomous Community with the highest fiscal deficit, posting a €16.72 billion one, equivalent to €2,575 per citizen. In the last few months, the regional government of Spain's capital city, run by the People's Party (which also runs the Spanish Government), has been lobbying to grant Madrid greater resources. Ironically in the last two decades, the Spanish Executive has been carrying out centralist infrastructure plans, such as building a radial railway network for high-speed trains where all the lines pass through Madrid. Furthermore, the Spanish Government has spent billions in Madrid Barajas Airport and in the capital's metro lines or short distance trains, and it has under-budgeted or delayed many investments in other parts of Spain, such as in Catalonia. In addition, all the Spanish Ministries, most of the public companies and agencies, and many multinationals pay taxes in Madrid.

Catalonia is the second Autonomous Community with the highest fiscal deficit according to the Spanish Finance Ministry's calculations (€8.46 billion and €1,119 per person). The other two Autonomous Communities bringing resources to the system are Valencia (€2.02 billion, equivalent to 2.03% of its GDP and €394 per person) and the Balearic Islands (€1.48 billion, equivalent to 5.71% of their GDP and to €1,329 per person). The rest of Autonomous Communities have a positive fiscal surplus, meaning the receive more than what they bring to the common system. For instance, Extremadura receives an equivalent of 17.64% of its GDP (€2.99 billion); the Canaries get 9.96% of their GDP (€4.05 billion); Castile and León, 7.10% (€3.93 billion); Galicia, 5.79% (€3.24 billion); and, Andalusia, 5.24% (€7.42 billion). Ironically, Catalonia and Valencia are the two Autonomous Communities with the highest public debt levels, since their governments are under-budgeted, while Extremadura is posting very low debt levels and is lowering its own taxes this year.

Montoro stated he will not give more resources to the Autonomous Communities

On Tuesday, in a press conference in Barcelona, Cristóbal Montoro stated that the Spanish Government is not planning to grant the Autonomous Communities greater resources, despite the fact that they are exclusively managing the healthcare, education and social affairs systems, among other policies, and they have been obliged to undertake severe budget cuts. In addition, the Spanish Finance Minister closed the door once again to setting up a new scheme granting the Catalan Government a greater amount of resources, reducing Catalonia's solidarity to the common scheme and its transfer to poorer parts of Spain.

This demand is widely shared by a majority of the Catalan society and it was proposed by the President of the Catalan Government, Artur Mas, in September 2012 to the Spanish Prime Minister, Mariano Rajoy, who even rejected to talk about it. At the time, Catalonia's fiscal agreement had the support of more than 75% of Catalans and the entire business community. This fiscal pact would have been quite similar to the one the Basque Country and Navarra already had, but Rajoy rejected to even talk about it.

Barcelona (ACN)

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