Catalan Government will not meet 1% deficit target for 2014, imposed by Spanish Executive

Barcelona (ACN).- On Thursday, the Catalan Finance Minister, Andreu Mas-Colell, admitted that Catalonia will not be able to meet the strict 1% deficit target imposed by the Spanish Government for 2014. In fact, the Catalan Executive had previously warned on several occasions that this deficit target was not realistic, despite the great austerity efforts undertaken over the past four years. In addition, despite Spain's economic recovery of 2014 – which is led by Catalonia – and therefore the increase of taxable activity, the Spanish Government will reduce the Catalan executive's funds by €500 million this year while the deficit target becomes stricter. The Catalan President, Artur Mas, had already stated on Wednesday that, considering the austerity measures adopted since 2011, further budget cuts cannot be undertaken in 2014 without dramatically damaging basic public services such as healthcare and education. Instead of relaxing the deficit target or transferring pending funds and debts to the Catalan Government, the Spanish Finance Ministry will reduce the interest rate that the Autonomous Communities have to pay back to 1% for the loans of the Liquidity Fund (FLA). This mechanism was put in place two years ago by the Spanish Government to officially cover the financial needs of the Autonomous Communities, including Catalonia. However, it has become the only source of cash for the Catalan Government, besides the sales of its own assets or the regular transfers of the inter-territorial funding scheme, which is totally controlled by the Spanish Executive with a lack of transparency and with great doses of politically-driven decisions. The result is that since 2011, the Spanish Government has used the FLA, the inter-territorial transfers and sector reforms to recentralise power by taking powers away from the Autonomous Communities and totally controlling their monthly cash-flow.

On Thursday, before entering into the Council of Financial and Fiscal Policy (CPFF), which gathers together the Spanish Finance Ministry and the Finance Ministers of the Autonomous Communities, the Catalan Minister, Andreu Mas-Colell, admitted that Catalonia would not be able to meet the strict 1% deficit target of 2014, which was unilaterally imposed by the Spanish Government. "This 2014 we will keep things going, but everybody knows that we will not reach a 1% [deficit target] and we will go above it", stated Mas-Colell. In fact, the Catalan Finance Minister had already announced in 2013 that the 1% deficit for 2014 was not realistic. In the past few days, he has been insisting that the Spanish Government o relax this target or grant the Autonomous Communities greater resources, considering that the economic recovery is improving.

This 2014, despite the economic recovery and the increase of tax revenue, the Spanish Government reduced the funding of the Autonomous Communities through the regular inter-territorial transfer scheme. The Catalan Government, for instance, will have 500 million less in revenue, while it will have a stricter deficit target than in 2013. Therefore, it will be obliged to undertake further budget cuts or to not honour a deficit target unilaterally imposed by the Spanish Executive, which is the one unilaterally deciding to reduce regular transfers as well. This week, both the Catalan President and Mas-Colell having been highlighting that after 4 years implementing drastic austerity measures, further budget cuts cannot be undertaken without dramatically damaging basic public services such as healthcare and education, which are totally managed by the Catalan Executive.

On Thursday, in the CPFF, the Spanish Finance Minister, Cristóbal Montoro, announced that Autonomous Communities would only have to pay a 1% interest rate for the loan from the FLA. Therefore, the Spanish Government did not relax the deficit target, neither directly gave the Autonomous Communities a greater amount of resources. However, the modification of the interest rate will represent a significant saving for all the Autonomous Communities in 2014, going beyond €2 billion. In Catalonia's case, it will represent saving some €700 million. However, the Catalan Finance Minister is sceptical about it since the saving is still under the FLA framework, which totally controls the Catalan Government's cash-flow. Mas-Colell stated that this way of granting more resources to the Autonomous Communities follows a "recentralisation" logic which has been in place for the last 3 years.