Catalan Government posts provisional 1.97% deficit for 2013, a reduction of more than €500 million

Barcelona (ACN).- On Monday The Catalan Government issued its provisional budget deficit figure for 2013, equivalent to 1.97% of Catalonia’s GDP. The figure is above the 1.58% deficit target imposed by the Spanish Government, although it represents a reduction of €526 million on the 2012 results. However, it is also below the 2.17% target upheld by the Catalan Government as a reasonable figure, in line with its spending responsibilities. In fact, the Spanish Government has praised Catalonia’s “very significant” deficit reduction, without criticising the slight deviation from the strict 1.58% target. The Spanish Deputy Minister for Finance, Antonio Beteta, explained that the Catalan Government had managed to continue reducing its deficit in 2013 despite not having obtained exceptional revenues from privatising public companies, such as the water enterprise ATLL (an operation that brought €700 million in 2012). The Catalan Finance Minister, Andreu Mas-Colell, was “satisfied” with the deficit obtained in 2013, since he considers the fiscal consolidation effort imposed on the Autonomous Communities, which exclusively manage the basic welfare state policies such as healthcare, education and social affairs, “out of proportion”. In fact, Autonomous Communities manage around 35% of Spain’s total public spending, while the Spanish Government is directly responsible for 50% of it. On Monday, the Spanish Executive posted a 4.33% deficit for 2013, instead of the 3.8% target it had granted itself. This means that the Spanish Government was directly responsible for 65% of Spain’s total public deficit last year. If Social Security – exclusively managed by the Spanish Executive – is added, the Spanish Government’s deficit reaches 5.49%. “It is about time that the Central administration [Spanish Government] gets slimmer”, stated Mas-Colell. However, plans for 2014 and 2015 grant a greater share of deficit to the Spanish Government, while that of the Autonomous Communities continues to decrease. While Catalonia has reduced its deficit by 57% between 2010 and 2013 and the average of the Autonomous Communities was 52%, the Spanish Government only reduced its deficit by 5% in the same period. Furthermore, Mas-Colell complained that some of the Spanish Government’s decisions, such as the VAT increase, directly increase the Catalan Government’s spending. The Catalan Government does not receive any revenue from this tax increase but it has to pay greater amounts of money on its service providers’ bills, which resulted in paying €198 million additionally in 2013. Besides, Catalan municipalities posted a global budget surplus, which makes the Catalan public sector’s global deficit 1.5%.

Catalan parties have been extremely critical over the past few years of the way the Spanish Executive has split the deficit allowed to the entire Spanish public sector by the European Union institutions among the different levels of government. A wide majority of Catalan parties complained that the distribution is not in line with spending responsibilities and the policies managed. Autonomous Communities get a smaller share of allowed deficit than the percentage they would be entitled to according to the percentage of public money they directly manage. However, this distribution goes beyond accounting, efficiency and financial stability criteria and has an additional specific political objective: recentralisation.

Stricter deficit targets on the Autonomous Communities, a recentralisation tool

By imposing stricter deficit targets on the Autonomous Communities, the Spanish Government has drastically reduced their spending capacity but also the number and quality of the services provided by this level of government. Therefore, by reducing the capacities of the regional governments, the Spanish Executive has profited from the financial crisis to recentralise powers and gain a larger control on the regional finances.

The Catalan Government has been particularly vocal trying to change this trend and arguing that too-strict deficit targets could have dreadful effects on the Welfare State, such as on the public education and healthcare networks, exclusively funded by the Autonomous Communities. Furthermore, Catalonia insisted it would continue to reduce its deficit, but not at the pace imposed by the Spanish Government since that would mean dismantling public services. Catalonia’s was the first government to implement budget cuts in Spain, it has carried out significant reforms and it is the only Autonomous Community that has kept the salary reduction of its public employees.

Catalonia demanded a 2.17% deficit target for 2013

The Catalan Executive has been trying to negotiate more reasonable deficit targets but the Spanish Government imposed its own criteria through the Fiscal and Financial Policy Council (CPFF). However, in 2012 it slightly relaxed the deficit objectives for all the Autonomous Communities, since the original target was unrealistic. In addition, in 2013, the Spanish Finance Ministry also relaxed the target for some Autonomous Communities, such as Catalonia, which went from a 1.3% target to one of 1.58%. The Catalan Government welcomed the flexibility but declared it was way below its demand for setting a 2.17% target. The 2.17% figure represented a third of the 6.5% deficit allowed by the EU to the entire Spanish public sector in 2013, since the Autonomous Communities directly manage around 35% of this money.

The Spanish Government imposed an average deficit target of 1.3% on the Autonomous Communities for 2013, although each one had its individual target. The 1.3% figure represented only 20% of the deficit allowed by the EU. The Catalan Finance Ministry complained about “the great unbalance between the deficit reduction the Spanish Government required of the Autonomous Communities” and the one it requires of itself. The settled deficit for the Autonomous Communities was 3.24% in 2010 and 1.54% in 2013, which represents a 52% reduction. At the same time, the deficit of the Spanish Government and the Social Security – directly managed by the Spanish Government – represented 5.8% in 2010 and 5.49% in 2013, a 5% reduction. Furthermore, the Spanish Government is the only level of government that has increased its deficit in 2013 (5.49%) compared to the 2012 figures (5.23%).

Between 2011 and 2013, the Catalan Government has reduced its deficit by 57%

The Catalan Government explained that between 2011 and 2013, it went from a 4.59% deficit to one of 1.97%, which represents a reduction of 57%. In 2013, the Catalan Government’s Ministries reduced their spending by €1.43 billion. At the same time, the regular transfers of money from the Spanish Government to fund the Catalan Executive – which are part of the funding scheme since Madrid collects the taxes generated in Catalonia – have been reduced for another year. These transfers were reduced by €111 million. Between 2011 and 2013, these transfers have been reduced by €778 million, a 57.4% reduction compared to 2010 figures. The Catalan Finance Ministry also pointed out that the Spanish Government’s VAT increase cost the Catalan finances an additional €198 million to, since they do not get any money from the tax increase but they have to pay greater taxes in their bills. In 2012, the VAT increase already cost an additional €66 million. On top of this, the Catalan Government complained that the Spanish Executive has blocked some of its spending reduction measures, such as the drug prescription fee, which was instrumental to reduce the pharmaceutical spending.