catalan budget

Andreu Mas-Colell, the Catalan Government’s Finance Minister, emphasised that a 0.7% deficit objective means implementing an additional budget adjustment of €4.4 billion. This amount represents around 15% of the Catalan Executive’s budget for last year, which had already been reduced over the previous two years. Furthermore, expected revenue will decrease by 1% despite increases in tax, debt interest will grow by €300 million and the amount of spread payments will also increase by €150 million. In such circumstances a €4.4 billion one-year adjustment would blow up public services in Catalonia. Therefore, Mas-Colell urged the Spanish Government to find an agreement, as otherwise no one wants PM Rajoy to act “as the viceroy of Catalonia”.

A month ago, the Catalan Government issued a preliminary deficit figure for last year of 2.3%. Now, the Catalan Finance Minister, Andreu Mas-Colell, has corrected this and issued “a more precise figure, although not definitive yet”, which represents having undertaken an adjustment of €3.3 billion in a single year. The Catalan Government was supposed to meet a deficit target of 1.5% in 2012, a figure imposed by the Spanish Executive and considered too strict by Mas-Colell, since it is not proportional to the Catalan Executive’s share of public spending. For 2013, the Spanish Government is imposing an even stricter 0.7% deficit target. Mas-Colell has been repeating that it is “irrational” and needs to be changed.

The Catalan Executive has provided details of how it will adjust €4 billion of its 2013 budget in order to meet the deficit target imposed by the Spanish Government. Besides the 1 billion tax increase already announced, the Catalan Executive will have to implement further budget cuts. On Thursday it will present its austerity plan for 2013 to the unions, which will affect all public employees, in order to save €700 million. As last year, public employees will not receive 7% of their annual salary, corresponding to part of the summer and Christmas bonuses. According to the unions, 3,000 civil servant posts will remain empty and 10,000 substitution contracts will not be signed.

The Spanish Government is keeping most of the 4.5% public deficit allowed to the entire Spanish public sector in 2013 for itself, despite managing only 50% of the total public spending. It has allowed itself a 3.8% deficit while it has imposed a 0.7% target on the regional governments, which manage almost 40% of the public spending including basic services such as healthcare and education. The European Parliament report indirectly asks Madrid to relax the Autonomous Communities’ deficit targets according to the basic services they provide. In addition, it also states that regional governments should have greater fiscal capacities and depend less on central government transfers. Furthermore, the report asks “some member states” to eliminate the ministries whose powers have been devolved and to “reduce unnecessary defence expenditures”.

The Constitutional Court has accepted the Spanish Government’s appeal against three measures adopted by the Catalan Executive to reduce its deficit, some of them negotiated last spring with the People’s Party (PP). The Spanish Government, which is run by the PP, now believes that these measures invade its own powers, “break market unity” and go against the principle of “equality for all Spaniards”. While accepting the appeal, the Court has temporarily suspended the application of the fees and taxes for a five-month period, which could be extended. The Catalan Government will appeal the decision as it believes the measures to be in line with the Constitution and within its jurisdiction. The drug prescription fee brought in €46 million in its first 6 months and it reduced public spending on medicines.

The Catalan Government has created a Treasury Secretariat within its Finance Ministry, which will be in charge of managing revenue, with the objective of developing Catalonia’s own tax office. The creation of a treasury of its own would allow the Catalan Executive to collect all the taxes generated in Catalonia, as Navarra and the Basque Country have been doing for decades. It is one of the electoral promises of the governing Centre-Right Catalan Nationalist Coalition (CiU) and is also part of the parliamentary stability agreement reached with the Left-Wing Catalan Independence Party (ERC). A Catalan tax office collecting all the taxes is an historical claim of a large part of the Catalan society. However the Secretariat created is in line with the CiU’s strategy of creating state structures and it has been criticised by the pro-Spanish unity parties.

On the 5th of December, the Catalan Executive allocated the tender to privatise the public companies Tabasa and Túnels del Cadí to the joint venture formed by Invicat (owned by Abertis) and the investment bank BTG Pactual. On Friday, the deal was completed and the Catalan Government earned €309.6 million, representing 72% of the total of the €430 million operation. In addition, the two public companies will effectively disappear. The concession will last for the next 25 years and the Catalan Government will continue to own the infrastructures but it will transfer the management and exploitation. The operation includes the tolls at the Vallvidrera highway tunnels accessing Barcelona and the Cadí tunnel, at Cerdanya County, in the Pyrenees.

The Spanish Prime Minister, Mariano Rajoy, has accepted the offer sent by the new Catalan President to talk about Catalonia’s claims, while keeping them “always within the Constitution”. Furthermore, he has rejected the possibility of modifying the 0.7% deficit target imposed on the Autonomous Communities for 2013. The Catalan Finance Minister, Andreu Mas-Colell, explained that, if the payment of financial interest is excluded, meeting next year’s 0.7% deficit target represents a budget surplus, which “makes no sense from an economic point of view in a context of recession”. Mas-Colell proposed that the Autonomous Communities meet a 1.5% deficit target in 2013, as they represent more than a third of Spain’s total public expenditure and Spain has been authorised a total deficit target of 4.5%.

With this decision, the Catalan Government wants “to safeguard” its power to adopt this type of tax or the equivalent revenue, after the Spanish Government announced the creation of its own tax while keeping it at 0% to prevent the Autonomous Communities from approving it. The Constitutional Court has already backed the taxes on bank deposits created by Extremadura, Andalucía and Canarias. Catalonia’s tax will not affect clients but only the banks. It will affect all banks operating in Catalonia, independent of where they are based. In addition, it will have retroactive effects as from the 30th of November. The Spanish Finance Minister warned that the Spanish Government will fully oppose it.

Holding the self-determination referendum before 2015 and certain aspects of the fiscal policy are the final obstacles to a definitive agreement between the Centre-Right Catalan Nationalist Coalition (CiU) – which won the elections but lost support – and the Left-Wing Catalan Independence Party (ERC) – which is the second largest party now, having doubled its support. After two and half weeks of negotiations, the ERC will vote for the CiU leader, Artur Mas, to be re-elected as President of the Catalan Government. However, the ERC’s stable parliamentary support – since it will not directly be part of the Cabinet – is not granted yet. Party leaders met on Friday to seal the agreement, but differences persist and the date for the re-election debate is approaching.

Staff members from Catalonia’s main hospitals, including Sant Pau, Vall d’Hebron, Clínic, Parc Taulí and Germans Trias i Pujol, carried out several protests on Wednesday. Some of these protests had already started a few days ago and might last a few days longer, such as spending the night in the hospital lobby. They are demonstrating to criticise the budget cuts affecting health centres and to defend the public healthcare system. Some of these hospitals are recognised at an international level for their top quality clinical and scientific research work.

At the end of October, the Catalan Government had a 1.17% deficit, representing a difference of €2.34 billion between revenue and spending. It is a significant reduction compared to last September, when the deficit reached 1.26% of the Catalan GDP. Furthermore, it also represents a 23% reduction compared to the first ten months of 2011, when there was a €3.05 billion deficit. The improvement is mostly due to an increase in revenue. By the end of 2012, the Catalan Government is obliged to meet a 1.5% deficit target.

Chemists in Catalonia had called to go on strike on Thursday because the Catalan Government owed them two payments for publicly funded drugs. According to the Catalan Government, the payments were delayed as they depended on receiving the funds from the Spanish Government’s Liquidity Fund. The Spanish Government announced this week it was transferring €99 million to the Catalan Government to pay the chemists. However, on Wednesday the chemists decided to maintain Thursday’s strike “as a warning signal” for the uncertainty on future payments and because they have not received yet the promised payment.

The Spanish Prime Minister, Mariano Rajoy, had previously accused the President of the Catalan Government, Artur Mas, of having blackmailed him by trying to “impose the fiscal agreement or accept the consequences” in last September’s meeting, when Mas proposed a specific fiscal agreement between Catalonia and Spain. The Catalan President denied having blackmailed the Spanish PM. According to Mas, Rajoy “did not want to negotiate a fiscal agreement” as he considered that “Catalonia is not as badly treated” as Catalans say. The Catalan President said he explained to Rajoy what would happen “if the answer to all Catalan claims is always ‘no’”. “It is not a threat, it is describing the reality. The President of the Catalan Government’s duty is to inform [the Spanish PM] about Catalonia’s situation” Mas added.

The Catalan Government increased the amount initially requested from the Spanish Government Liquidity Fund for the Autonomous Communities (FLA) adding €410 more million in order to include payments to service providers and local councils. The Spanish Government and the Catalan Executive have included more types of payments eligible for receiving funds from the FLA. At the end of August the Catalan Government requested €5.02 billion to pay for debt maturities and some ordinary payments. At the same time, the Spanish Government does not respect investment agreements in Catalonia and ensures that Catalan citizens suffer from a permanent fiscal deficit calculated to be some 8.5% of the GDP (around €17 billion).