The Constitutional Court temporarily allows the Catalan tax on bank deposits but still halts the drug prescription fee

Madrid (ACN).- The Spanish Constitutional Court lifted the temporary suspension of the Catalan Government’s tax on total bank deposits – which does not tax individual deposits – on Thursday. The Court adopted this decision while it is waiting to issue a definitive sentence on the measure. The Spanish Government took the Catalan Executive’s tax on bank deposits, the drug prescription fee and the new judicial fees to the Constitutional Court, stating that they were unconstitutional. The Catalan Government approved these measures in 2012 in order to reduce public deficit and meet the targets imposed by Madrid. The Court accepted the Spanish Executive’s appeal in January and temporarily suspended the implementation of the three Catalan measures for five months. When the period is almost over, the Court thought that, taking into account the need to reduce public deficit, the Catalan Government can now implement the tax on banks, while the magistrates agree on a definitive sentence (a process that can take years). The interests of the financial sector “cannot prevail on the general interest”, stated the magistrates. However, the Court considered that the drug prescription and judicial fees have a direct effect on citizens. Therefore their implementation could cause damages which would be very difficult to fix at a later stage if the measures were finally considered to be unconstitutional. Following this logic, despite the fact that the measures were also adopted to control public deficit, the Court decided to keep the temporary suspension until it reaches a final decision on the Spanish Government’s appeal.

The Catalan Government should earn €500 million with the tax on bank deposits

The Catalan Finance Minister, Andreu Mas-Colell, was satisfied with the Constitutional Court’s decision to temporarily allow the implementation of the tax on bank deposits. Mas-Colell confirmed that the Catalan Government will include the €500 million in revenue expected with this tax on banks in its 2013 budget. He also explained that he does not know yet if the money will be directly collected by the Catalan Government or it will be paid by the Spanish Government as compensation. When the Spanish Government approves a taxation figure on the same item as an Autonomous Community, it is legally obliged to compensate the Autonomous Community for these decisions as Madrid’s tax prevails and therefore the regional government would lose a source of revenue.

However, in this case the issue is still uncertain because the Spanish and Catalan governments struggled to approve the tax before the other one did. Madrid was trying to stop Barcelona from approving such a tax, stating that it feared it could harm the interests of the banking sector. Barcelona was trying to pass the measure in order to have the €500 million in revenue, either collecting it from the banks or with compensation. Madrid’s strategy was to approve a tax on bank deposits but leave it with no effect as it would be approved with a 0% rate. This way, banks would not have to pay any money and Barcelona would not be able to approve its own tax as it would already exist. However the Catalan Government was able to approve its own tax at the last minute, before the Spanish Government’s one. Then, the Spanish Government took the Catalan measure to the Constitutional Court to stop its implementation, which was successful for a five-month period. Now, according to Mas-Colell, the Catalan Government’s legal services will have to draw up a strategy in order to ask either for compensation or to be able to start collecting the tax.

At this point, it is important to emphasise that the tax is not on individual bank deposits but on the overall funds managed by the banks operating in Catalonia. Therefore, the tax has nothing to do with that proposed in Cyprus a few months ago, but with a tax that has already been implemented in other Autonomous Communities such as Andalusia, Canarias and Extremadura. The Spanish Government, which is run by the People’s Party (PP), appealed Catalonia’s tax but not Extremadura’s, where it runs the regional government.

The Catalan Government laments the suspension of the judicial and drug prescription fees

In addition, the Catalan Finance Minister lamented the decision to carry on with the suspension of the judicial and the drug prescription fees. Mas-Colell emphasised that he believes the three measures are constitutional. The Catalan Justice Department also explained that the judicial fees aimed to “increase revenue in the current economic context” and they denied that they had “a dissuasion goal” or they “put at risk” the citizens’ right to bring an issue to court. The Catalan Government stressed their fees were “moderate” and “gradual”, considering the citizens’ financial situation, and therefore “cannot be compared to those adopted by the Spanish Executive”. The maximum amount somebody will pay, considering he/she is in a good financial situation, is €120. The minimum is €0, for somebody without an income.

The Catalan Government implemented the judicial fees on the 2^nd of May but the Spanish Government has its own fees in place and was planning to create new ones (which it did a few months ago). Therefore, the Spanish Executive appealed in order to abolish what they considered to be “a double taxation” on the same service. The Catalan Government stated on Thursday that the judicial fees had brought in €7.1 million in the first 7 months of implementation.

€45.7 million was earned by the drug prescription fee and drug spending was reduced by 23.9%

The drug prescription fee brought in €45.7 million in 6 months. In addition, drug spending in Catalonia in November was reduced by 23.9% compared to the previous year, because of this measure and the one introduced by the Spanish Government. In fact, the Catalan Government considers the fee to be more important for moderating the demand (and thus public spending) than for brining additional revenue. The Catalan Executive initiative was implemented on the 23^rd of June, after having been approved by the governing Centre-Right Catalan Nationalist Coalition (CiU) with the indirect support of the PP – which runs the Spanish Government – in the Catalan Parliament on the 20^th of March. In addition, it had previously been validated by the Catalan Council of Constitutional Guarantees (CGE), an advisory body to the Generalitat on Constitutional affairs, on the 6^th of March. The measure meant that the Catalans had to pay a one-euro fee for each drug prescription, with a maximum of 60 euros per year and with many exceptions for people with chronic diseases, on low incomes and pensioners.

However, six months after its implementation, in the middle of the clash between the Spanish and Catalan nationalists over Catalonia’s right to self-determination, the Spanish Government brought the measure to the Constitutional Court. The appeal put an end to the talks held by the two executives over the last few months to modify such measures.

How the drug prescription fee works

The drug prescription fee aimed to reduce healthcare spending by moderating the purchase of medicines, the final goal being to reduce the public deficit. Each person buying medicine in Catalonia with a doctor prescription has to pay an additional euro, up to a maximum of €60 per year (€36 in 2012). 127,000 citizens will not have to pay the fee for social reasons. They are those receiving the Insertion Minimum Income Grant (RMI) (55% of the 127,000 citizens), receiving a non-contribution pension (44%), being a beneficiary of the Law for the Social Integration of Disabled People (1.2%) or being registered at the Fund for Social Assistance (0.04%). The fee will not have to be paid for drugs received at hospital or given by doctors in community health centres. In addition, if the drug costs less than €1.67 (7% of medicines), patients will not have to pay the fee.

The Catalan Health Ministry estimated that each Catalan citizen will have to pay an average of €13 per year and that around 12% of citizens (800,000 individuals) will reach €60 per year, which is the ceiling set. The one-euro fee will apply to everybody buying medicine in a pharmacy in Catalonia with a prescription issued by the Catalan Healthcare System, no matter if they are resident in Catalonia or not.

The details of the tax on bank deposits

On the 18^th of December, the Catalan Government approved a tax on bank deposits to be paid by financial entities and with no direct effect on citizens. It established 3 different tax rates: 0.3%, 0.4% and 0.5%. They are meant to tax the total deposits by all banks operating in Catalonia, no matter where they are based. The tax rate varies in relation to the volume of deposits each bank has in Catalonia. For those banks with deposits below €150 million, they have a 0.3% tax. For the financial entities with deposits between €150 million and €600 million, the tax rate is 0.4%. Finally, for the banks with more than €600 million in deposits in Catalonia, the tax rate is 0.5%.

Besides the tax rate, a fixed fee will also be included for the two larger types of banks. Those entities having deposits in Catalonia worth between €150 million and €600 million will have to pay an additional fee of €450,000 per year. The banks with more than €600 million in deposits will have to pay a €2.25 million fee per year.

In addition, the Catalan Executive’s proposal establishes a €200,000 deduction for banks based in Catalonia. It also sets a €5,000 deduction for each branch that a bank has in Catalonia, no matter where they have their headquarters. Furthermore, for the branches set in towns with less than 2,000 inhabitants, a deduction will be set at €5,500. This decision aims to benefit the banks with a wide and diversified network in Catalonia.

The proposal also includes further deductions, targeting all the banks, in order to create an incentive to offer loans for economic and social projects developed in Catalonia. In addition, the deduction also affects loans for projects linking the public and the private sectors in Catalonia.

The law also includes fines for the banks that de-localise deposits outside the Catalan territory, sending money from branches based in Catalonia away in order to avoid paying the tax. The fine would represent an additional 50% on top of the defrauded amount.