Saturday, November 22, 2014

Spanish Government rules out a new inter-territorial fiscal scheme, despite the current one having legally expired

Spanish Finance Minister Cristobal Montoro
On Wednesday, the Spanish Finance Minister, Cirstobal Montoro, refused to start negotiating and launching a new funding scheme for the Autonomous Communities before 2016, even though the current model had to be reviewed before January 2014. The Catalan Government has been insisting on its review since 2012, since the system does not properly fund basic public services such as healthcare and education in times of economic crisis, areas which are entirely managed by the Autonomous Communities. In addition, Catalonia suffers a permanently high fiscal deficit: each year Catalan taxpayers have to give away some 8.5% of Catalonia’s annual GDP to fund services and infrastructure in the poorer regions in Spain, a transfer equivalent to some €17 billion per year. The problem is that after such annual transfers, public services in poorer parts of Spain have more money per inhabitant than those in Catalonia. 

In addition, the Spanish Government does not invest enough in productive area such as Catalonia, which receives investment way below its population and GDP share. Therefore, the public services in Catalonia are under budgeted compared to other parts of Spain and basic infrastructure is not built which slows down the economy. The Spanish Government has been postponing the new model, despite the territorial tensions and the self-determination demands. Now, Montoro has definitively shut the door and Catalans will have to wait at least a year and half more.


In front of the Spanish Parliament, Montoro announced that the current model funding the Autonomous Community government will not be changed in the current term, which ends in one year time, neither he will start negotiating a new scheme. According to the law, the current model had to be reviewed before January 1st, 2014, which has not been the case. The Spanish Government has been postponing the revision with the argument of the economic crisis, saying that now it was not the time since revenue and spending are not at regular levels. In addition, they added that there would not be enough consensus among the different government levels and Autonomous Communities, even though most of them are ruled by the People’s Party, which also runs the Spanish Government.

However, at the same time, the Catalan Government was urging the Spanish Prime Minister, Mariano Rajoy, to do so because basic public services such as healthcare, education and social affairs are under severe stress and cannot withstand further budget cuts without their quality being seriously damaged. Since such services are managed by the Autonomous Communities, which can then be blamed by the citizens, Rajoy has not authorised reviewing the current model.

Montoro repeated on Wednesday that with the current economic context, a change is not possible. In addition, he also argued that the current political atmosphere would make such a change “unviable”, regardless of the fact that the Catalan Government has been requesting it since 2012, almost 2 years before the current model was about to expire. In fact, legally speaking, the new model should have entered into force on the 1st January 2014 and therefore should have been negotiated throughout 2013.

The Finance Minister argued that launching such a revision now would trigger “grievances among Spaniards”. Instead of a new model, Montoro emphasised that the Spanish Government is “sharing the debt” among the different government levels to fund public services. Once again, he defended the Liquidity Fund for the Autonomous Communities (FLA), which issues loans that later individual regional governments have to pay back with interest. This mechanism transforms the Spanish Government into a bank that earns money instead of being a coordinator that distributes resources without taking advantage of it. On top of this, Montoro is presenting such loans as a basic assistance to governments such as Catalonia’s, while at the same time the Spanish Executive does not allow the Autonomous Communities to access financial markets and to obtain alternative funds.

Therefore, Montoro is not allowing the Autonomous Communities to get additional funds, neither does he agree on reviewing their current funding scheme, one that cannot provide enough funds for their needs any longer, and, instead, it issues loans out with which the Spanish Government will make money. Through this system, Rajoy is recentralising power and putting the Autonomous Community system under severe stress. In the current political situation in Catalonia, with demands for independence shared by a large part of society, Rajoy’s attitude is far from easing things and, instead, it adds further tension.

On top of this, the Spanish Government refuses to recognise Catalonia’s historical fiscal deficit and it has been denying it or downplaying it. Such an attitude irritated the main business associations in Catalonia, who urged Rajoy to admit the fiscal deficit and to partially correct it, funding infrastructure that is essential to ensure the competitiveness of the Catalan economy, which is Spain’s main economic engine, leading exports, industrial production and tourism industry.

ACN

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