Catalonia predicts 2.2% deficit for 2014, while Spanish Government imposed a 1% target

Barcelona (ACN).- The Catalan Government is expecting to post a 2.2% deficit for the whole of 2014, corresponding to some €4.41 billion. However, the definitive figure will not be known until March. This is more than double the 1% deficit target that the Spanish Government unilaterally imposed on the Catalan Executive. Over the last few years, the two governments have quarrelled about deficit targets, since the Spanish Executive is imposing much stricter objectives on the Autonomous Communities than those it allows itself, despite regional governments exclusively managing and funding the basic Welfare State services such as healthcare and education. For instance, for 2014, the Spanish Government only allowed the Autonomous Communities to only have 15% of the whole deficit allowed by the European Union to Spain’s entire public sector, despite managing some 35% of the country’s public funds and basic services. With such a strategy, the Spanish Government is obliging regional executives to drastically reduce expenditure and services, while they give up on some self-rule powers. Therefore, Spain is recentralising powers by imposing strict deficit targets to the Autonomous Communities. The Catalan Government has complained on numerous occasions about it and has requested more realistic objectives.

The Catalan Government will end 2014 with a €4.41 billion deficit, the equivalent to 2.2% of Catalonia’s GDP. In October, the deficit accumulated had already reached 1.76%. In 2013, the Catalan Government posted a 1.97% deficit, while the Spanish Government had granted a 1.58% target.

Catalonia has reduced 15% of Spain’s total deficit, despite only managing 5.5% of total public money

Furthermore, a few weeks ago, the Catalan Finance Minister, Andreu Mas-Colell, emphasised the fact that the Catalan Government has undertaken the most important budget adjustment in Spain since 2010, Catalonia had a €9.1 billion deficit in 2010 representing 4.53% of its GDP and in 2015 it will post a €1.44 billion deficit, representing a 0.7% deficit. This represents a deficit reduction of 84.2%, equivalent to €7.66 billion. Moreover, if the payment of financial interests were to be left out of the equation, Catalonia would actually post a €273 million budget surplus for 2015, representing a 0.13% surplus in relation to its GDP. In 2010, such a deficit without financial interests reached €8.18 billion, the equivalent of 4.08% of Catalonia’s GDP. Therefore, in 5 years, the Catalan Government will have reduced structural deficit by 103%, transforming it into a €273 million budget surplus.

In addition, the Catalan Government has been directly responsible for 15.12% of Spain's total deficit reduction since 2010, despite it only managing 5.49% of the country's public money. The Spanish Government reduced its spending per capita by €113 between 2010 and 2013, while the Catalan Executive reduced it by €694 in the same period. In fact, the Catalan Government’s spending decreased by €5.24 billion in that period while that of the entire Spanish Government only decreased by €5.28 billion. The Spanish Government is responsible for more than 50% of Spain’s total public spending, despite it not implementing the basic Welfare State policies, with the exception of pensions and unemployment benefits.

Catalan taxpayers are obliged to give away 8.1% of Catalonia’s GDP each year

In addition, the Catalan Government is significantly under-budgeted in comparison with other Autonomous Communities in Spain, since 43% of taxes paid by Catalan citizens are spent outside Catalonia following the Spanish Government’s non-transparent fiscal redistribution scheme. The Spanish Government raises the majority of taxes and partially funds the Autonomous Communities, which have quite limited fiscal capacities. In fact, according to the most comprehensive study on the issue, compiled by the Catalan Government, Catalans have been giving away an average of 8.1% of Catalonia’s GDP each year for at least the last 26 years, an amount that is equivalent to giving away on an annual basis some €16.5 billion (in today’s money). The Catalan Government’s entire spending for 2015 will amount to some €22.5 billion and 71% of it will go towards paying for the public healthcare system, schooling and university education, and social protection. This excess of imposed solidarity with poorer regions makes Catalonia have less public money per inhabitant than poorer regions throughout Spain, resulting in worse public services and long delays in building basic infrastructure. In particular, this excessive fiscal deficit affects Catalonia’s working and middle classes, those in need, and the entire economy, damaging competitiveness as it does.

The only study by the Spanish Government, published in 2008 with data from 2005 only, showed that Catalonia transferred between 6.4% and 8.7% of its GDP (depending on the calculation formula) to the rest of Spain each year. This means a transfer of between €13 billion and €17.5 billion in a single year. Around 75% of Catalan society wants to change this situation and reduce these fiscal transfers, while keeping certain degrees of inter-territorial solidarity with poorer regions. In fact, the Catalan Government proposed a new Fiscal Agreement between Catalonia and the Spanish Executive in mid 2012, which would halve the Catalan taxpayers’ contributions, ensuring the correct funding of public services in Catalonia and funds for poorer regions. The Spanish Government rejected even talking about this and firmly closed the door on any possible negotiations.