The Catalan Government would have had a deficit of 1.53% without the Spanish Government’s “disloyalty”

Barcelona (ACN).- The Catalan Government ended 2012 with a deficit of 2.3% according to preliminary data presented on Tuesday by the Catalan Finance Minister, Andreu Mas-Colell. However, Mas-Colell emphasised that if the Spanish Government had honoured its legal commitments and had not “centrifuged” its own deficit towards the Autonomous Communities, then the Catalan Executive would have had a deficit of 1.53%, very close to meeting the 1.5% deficit target imposed by Madrid. The President of the Catalan Executive and leader of the Centre-Right Catalan Nationalist Coalition (CiU), Artur Mas, underlined that Catalonia “is doing its homework”, despite the “Spanish Government’s great disloyalty”, which is provoking “an asphyxia on our country and the institution [the Catalan Executive], and this justifies the path taken by Catalonia, based on making its own way”, referring to the self-determination process. Mas-Colell explained that, in the context of economic recession and with the Spanish Government’s “obstacles”, the Catalan Government – which is called Generalitat – managed to reduce its deficit from 3.99% in 2011 to 2.3% in 2012. This represents a €3.48 billion reduction, which has been achieved in one year. Mas-Colell explained that the Generalitat has reduced its expenditure by 5.8% in the last year (-€1.46 billion) and by 12.2% in the last two years (-€3.27 billion), despite the economic recession, the consequent drop in tax collection and the increase in debt interest. In fact, the interest on debt has significantly increased from 2010, due to the high spread paid by Spain and the difficulty of the Autonomous Communities to find funds on the international financial markets. In 2010, the Catalan Government paid €919 million in debt interest and in 2012 it paid €1.72 billion, an €804-million increase. However, if the debt interest and differing payments were not taken into account, the Catalan Government has reduced its current expenditure by 8.8% in 2012 and by 17.4% in the last two years.

“The departments of the Generalitat and, mainly, the citizens of Catalonia have made a very significant effort, which is comparable to that of other countries”, stated Mas-Colell. 70% of the Catalan Government’s budget is to pay for public healthcare, education and social policies, which are exclusively managed by the Generalitat. The same day, the Spanish Ministry for Industry admitted that the Spain’s total deficit will “probably” not fulfil the 6.3% target imposed by Brussels and will end up being “around 7%”. In addition, the European Commission also stated today that Spain’s total deficit could likely reach 8% in 2012, mostly due to the Social Security deficit, which is directly managed by the Spanish Government. Opposition parties in Catalonia had very different opinions on the Catalan Government’s deficit data, some supporting the claims against the Spanish Government and others criticising Mas, Mas-Colell and the CiU for blaming Madrid or for the budget cuts.

Austerity as a value, not as “an ideology”

In the press conference to present the first results of Catalan Government’s budget liquidation of 2012, the Catalan President stated that “the situation is in a much more controlled phase than it was two years ago, and this was our obligation”. Artur Mas underlined that the Government he chairs is committed to budget stability and is working with austerity. However, Mas introduced a nuance, indicating that austerity has to be a permanent “value of public servants and governments”, “also in the good times”. According to him, austerity needs to be an omnipresent value while managing public resources, but it cannot become “an ideology”, a goal in itself, as therefore there is “the risk of austerity fundamentalism”.

The Spanish Government’s “great disloyalty”

Artur Mas insisted that if the Spanish Government had acted loyally, Catalonia would have met the 1.5% deficit target in 2012 imposed on the Autonomous Communities. “We are making this great austerity effort with tangible and evident results, in the middle of the Spanish Government’s great disloyalty”, he emphasised. Mas denounced the fact that the Spanish Government “is keeping part of the deficit that does not correspond to its expenditure for itself; it does not act [to reduce the deficit] and does not allow others to act; it does not pay the debts; and, on top of this, it raises taxes and it keeps all the additional earnings for itself”. This “asphyxia” is intentional, according to the CiU, as it makes the Catalan Government dependant on the Spanish Executive’s transfers and it reduces its autonomy, having a higher level of intervention by Madrid. It is therefore a recentralisation of powers, achieved through economic measures, eroding Catalonia’s self-government.

The “obstacles” put up by the Spanish Government to “centrifuge” its own deficit

Mas-Colell quantified Mas’ complaints regarding the Spanish Government: they corresponded to 0.77% of Catalonia’s GDP in 2012, representing €1.51 billion. By doing this, the Spanish Government is “centrifuging” its own deficit on to the Autonomous Communities, according to Mas-Colell: reducing its own deficit by increasing that of other government levels.

Firstly, the Spanish Government approved a decree on Healthcare, Education and Social Affairs in May, which was supposed to save €1.01 billion for the Catalan Government. The Generalitat modified its 2012 budget accordingly and it included the calculation in its budget plan to meet the 1.5% deficit target. However, at the end of the year, instead of €1.01 billion, the measures only saved €143 million, a difference of €866 million. The Catalan Government already stated months ago the measures were not enough and that further measures needed to be adopted by the Spanish Government. The Generalitat put in place a drug prescription fee to partially correct this, which was in place for half a year, but the Spanish Government appealed the Constitutional Court to stop the measure.

Secondly, decisions unilaterally adopted by the Spanish Government have made the Catalan Executive lose €138 million. In particular, Madrid’s decision to increase VAT has forced the Generalitat pay €66 additional million in taxes. Furthermore, the Spanish Government has restricted the Autonomous Communities’ access to private credit and made them dependent on its transfers. Since the Spanish Government did not transfer a loan to guarantee the Generalitat’s liquidity on time, the Catalan Government prioritised paying salaries and decided to pay the Social Security contributions of its workers late, as the Social Security is managed by the Spanish Executive. However, Madrid decided to impose a €72-million fine for the delay.

Thirdly, the Spanish Government has decided to reduce the direct transfers to the Catalan Government to fund specific services (amounts agreed on in previous years, corresponding to services devolved, such as managing Barcelona’s short distance trains). From €1.35 billion in 2010, Madrid passed to €1.14 billion in 2011 and to €640 million in 2012. Since reducing the activity linked to these funds was not always possible, the Catalan Government took up the Spanish Government’s €496 million drop in 2012, by bringing in an additional €296 million.

Fourthly, the Spanish Government has not paid the €211 million it is legally obliged to pay Catalonia for the lack of infrastructure built in the last decades, an amount owed from 2009 to be paid within the next three years. On top of this, the Spanish Executive still owes the amount from 2008, representing €759 million. In total they represent a debt of €970 million.

Besides, as aforementioned, the Spanish Government is taking the measures adopted by the Catalan Government to reduce the deficit to the Constitutional Court. These include the drug prescription fee, new judicial fees and the tax on bank deposits. Not implementing these fees and taxes will mean that the Catalan Government loses €820 million in 2013.

A 17.4% current expenditure reduction in 2 years

Mas-Colell explained that, despite the context of economic recession and with the Spanish Government’s “obstacles”, the Catalan Government managed to decrease its deficit from 3.99% in 2011 to 2.3% in 2012. This represents a €3.48-billion reduction, which has been achieved in just one year. Mas-Colell explained that the Generalitat has reduced its expenditure by 5.8% in the last year (-€1.46 billion) and by 12.2% in the last two years (-€3.27 billion), despite the economic recession, the consequent drop in tax collection and the increase in debt interest. The expenditure reduction is even greater if the debt interest payments are not taken into account: a 7.2% decrease in 2012 and a 15.7% spending drop in the last two years. On top of this, if the delayed payments are also not taken into account – which were inherited from former Cabinets to pay for infrastructure that had already been built –, the current spending dropped by 8.8% in 2012 and by 17.4% in two years.

Ministries managing social policies are less affected by spending cuts

While reducing spending in all government departments, Mas-Colell insisted that they have tried to preserve the Welfare State. Therefore, the three Catalan Ministries managing the three main pillars of the Welfare State in Catalonia – Healthcare, Education and Social Affairs – have had their expenditure reduced by 12.5% as average in the last 2 years, while the rest of the Ministries had their expenditure decreased by 21.9% in the same period.

A fairer redistribution of the deficit objectives

In the press conference, Artur Mas and Andreu Mas-Colell insisted on the need to split deficit targets in a fair way among the different levels of government. They both denounced the fact that the Spanish Government is imposing an “absolutely disproportionate” deficit target on the Autonomous Communities, particularly in 2013, while it is keeping all the flexibility given by the European Union for itself. The Autonomous Communities are responsible for 36% of Spain’s total public spending and they exclusively manage the main public services. Furthermore, Catalonia is proportionally managing a greater share since it has more devolved powers, such as police, prisons and policies supporting the Catalan language and culture. The Catalan Government is asking for the Autonomous Communities to have a third of the deficit target allowed by the EU to the entire Spanish public sector. Spain is supposed to meet a 6.3% deficit target in 2012; a third of it would be 2.1% and a 36% of it would be 2.27%. The Catalan Government had a deficit of 2.3%, despite funds not being transferred by the Spanish Government. However, Madrid imposed a 1.5% target. If the Spanish Government would have honoured its obligations, Catalonia would have ended 2012 with a 1.53% deficit.

In 2013, Spain is allowed a deficit of up to 4.5%, but the Spanish Government is imposing a target of 0.7% on the Autonomous Communities. The Catalan Government has proposed a review of this, redistributing deficit targets among different government levels without increasing Spain’s global deficit target. The aim would be to set a new 1.5% target for the Autonomous Communities, but the Spanish Government is opposed. The difference between a 0.7% and a 1.5% target corresponds, in the case of Catalonia, to an adjustment of €1.6 billion.

A divided opposition

Opposition parties had very different opinions regarding the deficit data. The Left-Wing Catalan Independence Party (ERC) criticised the Spanish Government’s “disloyalty” and remarked on the perpetual fiscal deficit Catalonia has been dragging for decades, transferring around 8.5% of its annual GDP to the rest of Spain to pay for services and infrastructures, a quantity they would like to halve, since it represents around €17 billion per year. The People’s Party (PP) – which manages the Spanish Government – lamented the Catalan Executive’s change of economic policy. They also criticised them for blaming Madrid and “never assuming their own responsibility”. The Catalan Green Socialist and Communist Coalition (ICV-EUiA) criticised the budget cuts implemented by the CiU over the last two years, when it practised “austerity as a dogma”. The anti-Catalan nationalism and populist party Ciutadans (C’s) emphasised that the CiU had voted in favour of the budget stability law, pushing to reduce public deficit. “They voted for the law and now they criticise the deficit objectives? No. You just shut up!”, stated C’s Spokesperson.