The Spanish Government raises the deficit target for the Autonomous Communities from 0.7% to 1.2% for 2013

Barcelona (ACN).- The Spanish Government announced on Friday that it was raising the deficit targets for the Autonomous Communities from 0.7% for 2013 to an objective of 1.2% in order to give them more room to balance their budgets, considering the economic recession. The deficit target for Spain’s entire public sector has also been raised from 4.5% to 6.3%. The decision also affects the deficit objectives until 2016, when Spain expects to post a 2.7% total deficit, meeting the European Union requirements. Today the European Commission stated that it considered the fact that the Spanish Government decided “to delay the correction of the excessive deficit until 2016” to be “coherent”. However, the Commission did not mention the internal split of deficit targets among government levels, despite the previous Catalan petitions on this issue. For 2013, the Spanish Government has allowed itself a 5.1% deficit target, which is split as 1.4% for Social Security and 3.7% for the Spanish Government Departments. This means the Spanish Government has kept 81% of Spain’s total deficit target for itself while it is only responsible for 50% of Spain’s public spending. The regional governments, which fund the basic welfare state services and manage more than 35% of Spain’s total public spending, have only been allowed 19% of the deficit (a 1.2% target). The Catalan Government is asking for greater flexibility as the new target “is not enough”. The claim is backed by most of the opposition parties in Catalonia. In addition, Catalonia has a permanent fiscal deficit with the rest of Spain, which official studies calculate represents an average of 8.5% of the Catalan GDP each year. This means that annually around €17 billion of Catalan taxpayers’ money are given away, while the Catalan Government posted a €4 billion deficit in 2013, after severe budget cuts in all the departments including healthcare and education. On top of this, on Friday the Spanish Government also announced a €1 billion reduction in funds for the Autonomous Communities.

The Spanish Finance Minister, Cristóbal Montoro, announced that in 2014 the Autonomous Communities will have to decrease from a deficit of 1.2% in 2013 to a deficit of 1%. In 2015, the deficit target will be 0.7% and in 2016 it will be 0.2%. The Spanish Government has given itself a 5.1% target in 2013 (3.7% for the government departments and 1.4% for Social Security), 4.5% in 2014 (3.5% for the departments and 1.0% for Social Security), 3.4% in 2015 (2.8% and 0.6%) and 2.5% in 2016 (2.0% and 0.5%). Meanwhile, the entire Spanish public sector will have to meet a 6.3% deficit target in 2013, a 5.5% objective in 2014, 4.1% in 2015 and 2.7% in 2016, being below the 3% deficit required by the European Union.

A 1.2% deficit target “is not enough” for the Catalan Government

The President of the Catalan Government, Artur Mas, welcomed the revision of the deficit targets for the Autonomous Communities but he considered it “not to be enough to lift up the country”. Mas, who leads the Centre-Right Catalan Nationalist Coalition (CiU), emphasised that both Spain and the European Union should be interested in Catalonia’s recovery. According to him, if Catalonia fails, “Catalonia will suffer but the whole of Spain and the entire South of Europe will also suffer” because “if there is an economy that may be able to recover [in the South of Europe] it is ours”. Furthermore, Mas added that the Catalan claims are not asking for money from somebody else: “they are resources that we are not asking from someone, but that we generate from our productive work”.

The Catalan Finance Minister asks for a 2.1% deficit target

Furthermore, the Catalan Finance Minister, Andreu Mas-Colell, has been insisting over the last few weeks that the Autonomous Communities should have at least a third of the total deficit. Mas-Colell was “very disappointed” with the announcement since, with a total target of 6.3%, he was expecting a target of at least 2.1% for Catalonia. Mas-Colell has denounced the “asymmetrical reduction” in the process of fiscal consolidation, in favour of the Spanish Government. While the Spanish Government has to decrease from a deficit of 5.1% in 2013 to 2.5% in 2016, the Catalan Government will have to decrease from a deficit of 1.2% in 2013 to only 0.2% in 2016, which is more than ten times inferior the deficit allowed to the Spanish Executive, underlined Mas-Colell.

Left-wing opposition parties back the Catalan Government’s claim

Left-wing opposition parties in Catalonia also criticised the Spanish Government for giving such a strict deficit to the government level that has to pay for healthcare, education and social services. The Left-Wing Catalan Independence Party (ERC), which has a parliamentary stability agreement with the CiU, stated that they rather postpone the 2012 budget for 2013, than approve a new budget for 2013 with a 1.2% deficit objective. “We will not be accomplices to such nonsense”, announced. The Catalan Socialist Party (PSC) said that the new deficit target for Catalonia is “insufficient”. In addition they added that the economic situation is the “confirmation of the failure” of the People’s Party’s (PP) economic policies (the PP runs the Spanish Government). The Catalan Green Socialist Party (ICV) said that the new deficit target is “absolutely unfair”. The ICV warned the Spanish Government that with such a harsh deficit for the Autonomous Communities they will be “punishing healthcare, education and social services”.

An additional €1 billion budget cut

On top of this, the Spanish Finance Minister, Cristóbal Montoro, also announced that the Spanish Government will stop providing funds for services that in theory are exclusively provided by the Autonomous Communities. The Spanish Government was providing such money through specific consortiums, for instance in some hospitals, and it represents €1 billion for the whole of Spain. Therefore the Autonomous Communities will be obliged to cope with this additional €1 billion reduction in funds as well. According to Montoro, doing this now is the right time to do it because the deficit targets for the Autonomous Communities have been lifted and the powers between each government level are being clarified.

In 2012, the Spanish Government was responsible for 82% of Spain’s total deficit

The reasons for the revision of the deficit targets are the negative economic forecasts, which foresee a 1.3% drop in Spain’s GDP in 2013. In addition, Spain ended 2012 with a 10.6% deficit due to the banking sector bailout, missing the 6.3% deficit target imposed by the European Union. The Autonomous Communities ended 2012 with a 1.73% deficit, thus being responsible for only 16.3% of Spain’s total deficit, and local governments ended the year with a 0.2% deficit, 1.9% of the country’s total deficit. Therefore, the Spanish Government was responsible for the remaining 81.8% of the total deficit, while it is responsible for only 50% of Spain’s public spending.

Catalonia contributes with 8.5% of its GDP each year to pay for services and infrastructure in the rest of Spain

According to official data from between 1986 and 2009 released by the Catalan Government, Catalonia has been giving an average of 8.5% of its GDP to pay for services and investments made in the rest of Spain (calculated using the monetary flow formula). The Spanish Government has only released this sort of data once, in 2008, with data from 2005. It showed that Catalonia had a fiscal deficit of between 6.38% and 8.70% of its GDP, depending on the formula used. In 2005, this amount represented a fiscal redistribution effort ranging from €10.86 billion to €14.81 billion respectively. Nowadays, it could represent a redistribution of almost €17 billion. This imposed solidarity effort is judged to be excessive by a large part of Catalan society, which would like the fiscal deficit to be reduced and limited, especially when essential infrastructures are not being built and public services are being under-budgeted in Catalonia.