The Catalan Government budget for 2012 fulfils the 1.3% deficit objective by increasing taxes, selling assets and reducing public sector salaries

Barcelona (ACN).- On Tuesday, the Catalan Government presented its budget proposal for 2012, which now needs to get the approval of the Catalan Parliament. The Catalan Finance Minister, Andreu Mas-Colell, presented a €37 billion budget that fulfils the deficit objective for 2012, set at 1.3% of Catalonia’s GDP. As explained by Mas-Colell, the 2012 budget is the second part of a two-year adjustment plan, which has already reduced public spending by 10% in 2011. In 2012, the focus has been placed on increasing revenue and reducing public sector salaries. Overall, public spending has been reduced by 0.7%, as it includes the interest from the public debt, which will significantly increase next year (35%). Looking only at the spending of Government departments, expenditure has been reduced by 3.8%. Most of this corresponds to measures affecting public sector salaries and working conditions, which will save €625 million next year. Revenue will increase by 9.6%, representing €1.6 billion more. It will do so by three means: selling Catalan Government real estate assets, increasing public service fees, and raising taxes or creating new ones. As already announced, the Catalan Government will introduce a €1 fee on each drug prescription, with no difference between patients. According to Mas-Colell, the measure will bring in around €100 million and it aims to reduce superfluous demand and thus Catalonia’s pharmaceutical bill. The Catalan Government has also decided to create a symbolic tourist tax to be paid in relation to the hotel category and the number of night accommodation (ranging from €1 to €3 per night), which would also take in €100 million. The budget proposal presented on Tuesday is likely to have some modifications, as the Government party needs several MPs to have an absolute majority in the Catalan Parliament. It is expected parliamentary negotiations will be ongoing during Christmas and January, and the final budget should be approved by mid-February.

Andreu Mas-Colell has presented the Catalan Government’s budget for 2012 this Tuesday. All government departments will have their spending reduced, except one. The Department of Territory and Sustainability (in charge of public works, transport, energy and water management) has increased expenditure by 14.8%, but this is only due to payments and interests that cannot be delayed (several infrastructural projects were built in the past years using payment delay contracts). In fact, without those payments, the department would experience a 15.5% budget reduction next year.

Welfare State and Law and Order, the least affected

The budget reduction does not affect government departments and programmes in the same way. The departments that are least affected are those corresponding to basic welfare state policies, together with Home Affairs and Justice. The least affected ministry is ‘Welfare and Family’ (in charge of social policies), which will have its spending reduced by 1%. The Catalan Ministry of Justice follows with a 2.7% decrease. It is in charge of all Catalan prisons and the judicial administration. Following in the list is the Ministry of Health with a 4.8% reduction and that of Education with 4.9%. Catalonia fully manages the three basic Welfare State policies (although there is still a Spanish Health Ministry, a Spanish Education Ministry and a Spanish Social Policy Ministry). Another department with a 4.9% spending reduction is Home Affairs, which is in charge of most of the security policies in Catalonia, including the Catalan Police. Most of the adjustments in these departments correspond to the salary reduction of civil servants.

Revenue increase by 9.6%

When focussing on revenue, the Catalan Government has decided to increase the levels it collects in order to avoid basing so much of the adjustment on spending cuts. Therefore, revenue is expected to increase by 9.6%, which should bring in an extra €1.608 billion. More than half of the extra revenue will come from selling Catalan Government real estate properties. In the last decade, the Catalan Government had a policy of purchasing many office buildings. Facing the need to reduce the deficit in 2011, some properties have already been put up for sale, a plan that will continue in 2012. It is expected that €888 million will be made next year with the sale of these properties. In addition, some taxes and public fees will be increased or kept at the current elevated levels. These are: maintaining the Wealth Tax reintroduced by the Spanish Government (€240 million more in 2012), increasing the Fuel Tax (€130 million), and maintaining the high ceiling for Income Tax (€73.5 million). In addition, fees for legal documents will be raised (€72.5 million). Furthermore, some public companies will also raise public service prices, although they are not included in this revenue chapter. It is the case of the water supply, public transport tickets and motorway tolls. However, two newly created measures have particularly grasped the media’s attention: a universal fee for drug prescriptions and a symbolic tourist tax.

All Catalan citizens to pay €1 for each drug prescription

The President of the Catalan Government, Artur Mas, announced in late November that a fee will be introduced for drug prescriptions. Mas-Colell explained that the initiative aims to reduce superfluous demand, than of a way of acting as a way to earn money. Nonetheless, the Catalan Government expects to directly earn €100 million in 2012. In addition, the measure is expected to reduce the pharmaceutical bill in Catalonia’s Health System. The measure will be universal, meaning that no differences will be made between pensioners, chronically ill patients, or low-income or high-income earners. However, Mas-Colell explained that his department does not rule out the possibility of reviewing the universal nature of the measure and some citizen groups might not have to pay the symbolic €1 fee or instead have the amount reduced. In addition, the Catalan Ministry of Health released, on Tuesday evening, that there will be a 61 euro maximum amount per patient and year.

Tourists to pay a symbolic fee, depending on their hotel category

The tourist tax has been introduced with the aim of sharing the costs people visiting Catalonia generate in the public service. In addition, the Government wanted a symbolic fee, which would not trim Catalonia’s competitiveness as a tourist destination. Just like many tourist destinations such as Paris, New York or Tokyo, Catalonia will also charge visitors a fee. However, Mas-Colell insisted the Government wanted it to be a symbolic amount that should depend on the purchasing power of the visitor. The measure has been linked to the hotel category the visitor chooses. Clients in five-star hotels and cruise ships will pay €3 per night. Visitors staying at four-star hotels will pay €2 per night and, finally, those staying at a three-star hotel or in basic accommodation will pay €1 per night. Furthermore, tourists would only pay for their first 10 nights.

Fulfilment of the 1.3% deficit objective

The main objective of the 2012 budget is to fulfil the public deficit requirement set at 1.3%. Between the 2010 and the 2012 budgets, the Catalan public deficit will have been reduced by 67.2%, falling from a 4.22% deficit (€8.352 billion) to 1.3% (€2.74 billion). This represents reducing the Catalan Government’s deficit by €5.61 billion in only two years. Taking into account the Spanish Government’s refusal to pay the annual Competitiveness Fund and other transfers in 2011, and thus delaying payments, the Catalan Government has not included such funds in the 2012 budget. Mas-Colell said that they wanted to be “cautious” when planning the revenue available if they are to reach the 1.3% deficit objective and not depend on Spanish Government strategies or last minute decisions.