fiscal pact

The Government of Extremadura, a region bordering Portugal, presented a study comparing its contributions to the rest of Spain with those of the other Autonomous Communities, particularly focusing on Catalonia. The main thrust of the report was that Catalonia receives the highest amount of money from the Spanish Government, which goes against absolutely all the previous studies that have established that Catalan taxes fund services, investments and infrastructure in the rest of Spain. The Catalan Finance Minister, Andreu Mas-Colell, characterised “the political document” presented by Extremadura’s Government as a “complete nonsense”. Mas-Colell, who was Professor of Economics at Berkley and Harvard from 1972 to 1995, said that the report lacked rigour and was not a technical work. The next day Extremadura’s President, José Antonio Monago, stated that Catalonia is “a privileged territory” and questioned whether it could repay its debt.

The Spanish Prime Minister replied on Tuesday to the President of the Catalan Government’s proposal to discuss in a private meeting the question wording, date, and procedure of Catalonia’s self-determination vote. The Financial Times had also urged the Spanish Government to negotiate and make an offer to Catalans, while adding that “the ingredients” for a solution can be found in Catalonia’s question. While Mariano Rajoy answered he was open to meet with Artur Mas, he added he has nothing to negotiate on and nothing new to say. “The [Spanish] Government will not make any concession” regarding Catalonia’s self-determination. In addition, Rajoy insisted the vote “will not take place”. Furthermore, he added that Catalonia will not have a special funding scheme.

In addition, the Catalan Chamber has also approved setting up the exact date, question and legal process for the self-determination vote before the end of the year. The resolution was approved with 65% of the Catalan Parliament’s members voting in favour. However, the Catalan Socialist Party (PSC) – which is part of the Spanish Socialist Party (PSOE) – finally decided to vote against the text. The request was approved with the votes of the Centre-Right Catalan Nationalist Coalition (CiU) – which runs the Catalan Government, the Left-Wing Catalan Independence Party (ERC), the Catalan Green Socialist and Communist Coalition (ICV-EUiA) and the radical left wing and independence party CUP. The PSC, the People’s Party (PP) – which runs the Spanish Government – and the anti-Catalan nationalist and populist party Ciutadans (C’s) voted against.

Catalan Parliament approved on Wednesday the proposal for a new fiscal pact for Catalonia by an overall majority. The proposal defends the creation of an independent tax agency with powers to raise and manage all taxes in Catalonia. According to the Catalan President, Artur Mas, it involves starting a “difficult” negotiation with the government of Spain but it was either “now or never”. If achieved, this new fiscal arrangement would be similar to the one enjoyed by the Basque Country, that collects its own taxes and has been able to keep its debt under control. Therefore, it could help Catalonia getting out of the crisis. Currently, out of the all the territories, Catalonia is ranked third for the amount it pays in taxes, but is ranked tenth for the amount it receives in return. The new arrangement would see Catalonia leaving the common system established by the Organic Law on the Financing of the Autonomous Communities (LOFCA) and establishing bilateral fiscal relationships with Spain.

The Spanish Economy minister said on Monday that the state will “absolutely not” require a full rescue package such as the one taken by Greece, Ireland or Portugal. Speaking at a parliamentary hearing, De Guindos said that the Spanish economy is competitive and has “capacity to grow” unlike other struggling European countries. However, markets seem unconvinced by Luis de Guindo’s remarks, pushing the ten-year Spanish bond yields to more than 7.5%. Doubts about the autonomous communities financing capacity are also affecting the situation, especially after Valencia announced that it will ask for about 3,500 million euros from the Spanish Liquidity Fund. Catalonia, the most indebted community in Spain, is still considering whether to use the money from the fund, and will only decide after studying “the set of conditions” attached to it.

The Catalan President has made the case for Catalan full fiscal autonomy in a trip to Portugal. Artur Mas has started an international tour to try to explain to foreign leaders why Catalonia wants to have a new fiscal arrangement with Spain. According to the president, the Catalan fiscal deficit caused by the current system is damaging Catalonia, one of the driving forces of the Spanish economy, and therefore is also detrimental to Spain.