Green light for the Catalan Government’s plan of adjusting €4.3 billion to meet this year’s deficit target

Barcelona (ACN).- On Thursday, the Catalan Government had its budget adjustment plan approved, which includes a €4.3 billion adjustment in order to meet the 1.5% deficit target set for 2012. As expected the Council for Fiscal and Financial Policy (CPFF), which brings together the Spanish Government and the 17 Autonomous Communities, has approved Catalonia’s plan. All the Autonomies had their budget stability plans approved, except Asturias. The Catalan Finance Minister, Andreu Mas-Colell, stressed his satisfaction at “the common effort” made “by the Spanish Government and the Autonomous Communities”, “despite their different political colours”. Mas-Colell underlined that these plans are sending a clear “message of confidence” to Europe and financial markets. The Spanish Minister for Finance and Public Administration, Cristóbal Montoro, stated that, with the commitment of the Autonomies, the “door to leave the crisis behind is open”. In addition, he pointed out that the agreement represents “the continuity of public services” and “guarantees the Welfare State”. He also explained that the total adjustment that will be made by all the Autonomies in 2012 will be €18.349 billion.

The Catalan Government’s financial plan for 2012-2014 foresees an adjustment of €4.295 billion in 2012. Part of the adjustment will be made by reducing public spending by €2.68 billion and by increasing revenue by €1.615 billion. The financial plan approved on Thursday by the CPFF includes the measures announced in February and included in the Catalan Budget for 2012 and the measures announced by the Spanish Government in April, regarding healthcare, education and universities. In addition, it also includes the Catalan Government’s third austerity plan presented two days ago, which foresees an adjustment of €1.5 billion. Most of the measures included in the plan for 2012, will also be maintained in 2013 and 2014, such as the salary reduction of public employees, the Income Tax levels, or the contributions to some public companies.

On Tuesday the Catalan Government presented its third austerity plan in the past 18 months, which amends this year’s budget in order to adapt it to the current economic situation and the Spanish Government budget. Tuesday’s plan foresees an additional adjustment of €1.5 billion, which was added to the budget reduction approved from 2011 to 2012 in order to meet the strict deficit targets. This year, totalling all the adjustments, Catalonia will cut spending by €2.680 billion and will increase revenue by € 1.615 billion. This will enable the Catalan Government to pass from an official 3.72% deficit in 2011 to the requested 1.5% in 2012, an adjustment of some €4.3 billion. However, it must be noted that if the Spanish Government had paid the money it legally owed Catalonia in 2011, the Catalan Government’s official deficit would have been 3.29% and thus the adjustment to be accomplished this 2012 would also be significantly smaller. This point was included in the approved plan, explaining the Spanish Government did not pay in 2011 €759 million corresponding to 2008. Therefore, for 2012 the Catalan Government has included optional measures in order to avoid missing the deficit objective in case the Spanish Government finally does not pay the money owed.

The total distribution of the €2.68 billion of budget cuts reads as following: €729 million will come from modifying the working conditions and salaries of public employees. In addition, the Catalan Government will reduce €375 million decreasing its contribution to the Catalan Public Television and Radio Broadcaster (€40 million), universities (€12 million), and local governments (€143 million), and by reducing its own spending by €182 million. €1.069 billion will be saved through the measures approved by the Spanish Government in the areas of healthcare, education and universities. The rest of the amount to be cut off corresponds to the austerity plan approved on Tuesday.

The third austerity plan reduces spending by €735 million, through decreasing transfers to public companies by €300 million, subsidy cuts by €200 million and saves €100 million by rescheduling investments. In addition, it implemented the 5% salary reduction of Catalan public employees, to the Spanish Government’s employees that were receiving a salary complement paid by the Catalan Executive. Furthermore, the Fund for Local Cooperation, paid by the Catalan Government to assist local governments, will have €45 million less this year. In addition, the plan includes a plan B foreseeing an urgent sale of assets worth €283 million in case the Spanish Government at the end decides not to include the money it legally owes Catalonia.

The plan approved on Thursday foresees increasing revenue by €1.615 billion. Some of the mains way to increase revenue would be the following: €242 million would come from having recuperated the Wealth Tax; €73 million from maintaining the increase in Income Tax decided by the Spanish Government; €60 million from the Tax on Documented Legal Acts; €66 million from Fuel Taxes; €50 million from the Drug Prescription fee; and €888 million from selling assets (shares, buildings, or public companies). One of the companies to be sold is ‘Aigües Ter-Llobregat’ (ATLL), supplying water to Girona and the North of Barcelona Metropolitan Area.