The Catalan Budget for 2011 includes a 10% expenditure cut and a public deficit of 2.66%

Barcelona (ACN).- The Catalan Government finally presented its budget for 2011 on Tuesday morning. “Austerity, prioritising social expenditure, credibility and co-responsibility” are the budget’s four guiding principles according to the Catalan Minister for Finance, Andreu Mas-Colell. The budget for 2011 has to drastically reduce the deficit and boost economic recovery. Between 2009 and 2010, 3.6 billion euros of revenue was lost, which represents 1.7% of Catalan GDP. Professor Mas-Colell explained that the decrease of revenues in 2010, which are now in line with 2006 levels, combined with an increase of expenditure provoked a deficit overflow and an “unsustainable debt increase”. Balancing the budget was the first priority for this budget. After months of public debates and announcements of expenditure adjustments, which provoked many demonstrations by public employees, Mas-Colell presented the Catalan Government’s budget proposal to the Catalan Parliament on Tuesday. The budget of the Catalan Government and its public companies for 2011 totals 39,354 million euros, reduces public expenditure by 10% compared to last year and sets a deficit of 2.66%.

For the first time, the Catalan budget will be smaller than the previous year. The budget reduction amounts 2,680 million euros and totals 24,122.5 million euros, a figure similar to 2007. Despite this significant reduction, the public deficit remains at 2.66% of Catalan GDP and accounts for 5,408 million euros. This figure is far from the 1.3% deficit objective demanded by the Spanish Government.

The deficit objective will only be met if the Spanish Government shows loyalty

Mas-Colell explained that the Catalan Government did not commit to this objective in the Financial and Fiscal Policy Council (‘Consejo de Política Fiscal y Financiera) and only voted for the objectives of 2012, 2013 and 2014. Professor Mas-Colell stressed that the current Catalan Government is not responsible for the 2010 deficit excess (representing 3.86% of the Catalan GDP) and that they cannot be asked in the current context of revenue decreases to make the adjustments in only one year especially if the Spanish Government does not pay its part. Mas-Colell stated that he prefers to say now that the deficit will be 2.66% and reduce it rather than doing the opposite. The Catalan Finance Minister explained that Catalonia will only be able to reach the 1.3% deficit objective, imposed by the Spanish Government, if the Spanish Government fulfils its responsibilities and shows institutional loyalty. The Catalan Government estimates that 2,850 million should be transferred from the Spanish Government to Catalonia to meet the deficit objective: 2,650 millions already due and 200 more via transferring real estate assets. From the money due, 1,450 million euros correspond to the Competitiveness Fund for 2011, for which the Spanish Government wants to transfer in 2013. The other 1.2 billion euros come from calculating the investment in transport infrastructure the Spanish Government is legally obliged to carry out in Catalonia in 2011, as compensation for an historic and officially-recognised lack of investment. The current estimate does not reach 800 million, but Mas-Colell thinks that with another calculation method, the amount could reach 1.2 billion euros.

Debt interests increase

Regarding the budget items, only debt interests increase their share in the budget. They total 1,487 million euros, a 32% increase in only one year. Debt passed from representing 7.5% of the Catalan GDP in 2007 to 16.2% in 2010. Professor Mas-Colell decided to reduce the Catalan debt, but he explained that the adjustment must be gradual and cannot be done in only one year. Therefore, at the end of 2011, Catalan debt would reach 18.4% and it would still increase in the years to follow but at a very small rate. It is expected that after 2014, it should stabilise and start decreasing.

Social expenditure represents 70%

All the Catalan Government departments have seen their budget decreased, although not in a linear way. For instance, the Public Works Ministry’s budgeted expenditure has been reduced by 24%, Agriculture and Environment by 23%, and Business and Labour also by 23%. These three departments total a reduction of 717 million euros.

The departments with a smaller budget cut are: Home Affairs, with a 6.4 % reduction; Health, with 6.5%; and, Education, with 7.4%. These three ministries combined, represent a budget cut of 1,087 million euros. Health expenditure for 2011 is at 2008 levels. In 2011, health expenditure per person per year in Catalonia will drop from 1,297 euros to 1,207 euros, when the Spanish average is 1,289 euros.

However, the three social departments –Health, Education and Social Welfare– see their global share in the budget increase, passing from a 67% total to 70%. Public works will represent 6% of the entire expenditure and the remaining departments will split the remaining 24%.

Catalan economy to grow by 0.9% in 2011

The Catalan budget foresees a growth of 0.9% in 2011 of the Catalan economy, eight tenths more than in 2010, when it only grew 0.1%. It must be pointed out that in 2009, Catalan GDP dropped 4.9% due to the global crisis. In 2011, unemployment will remain high, reaching 18%, two tenths more than in 2010. This indicates a stabilisation that should be followed by a progressive decrease in 2012.

The final budget to be approved at the end of July

The Catalan Government is presenting its budget for 2011 because of the Catalan elections, which were held in November. The previous Government could not approve the budget for 2011 and the 2010 one was extended until the new budget was approved. The new Government took office in the last week of 2010 and worked on the new budget, which is presented this Tuesday to the Catalan Parliament. Within the next days, the Centre-Right Catalan Nationalist Coalition ‘Convergència i Unió (CiU), which runs the Catalan Government but does not have an absolute majority in the Parliament, will be negotiating with the other groups, seeking their support. The Government pushed for a quick approval and was asking the other groups to abstain. It is expected that the definitive budget will finally be approved by the Parliament on July 21^st, just before the summer break.