deficit reduction

Artur Mas, the President of the Catalan Government, has announced the main austerity measures to reduce Catalonia’s public deficit and meet the 1.3% objective for 2012. Mas stressed that these measures are to be taken in order to reduce the deficit and not harm social policies. The Catalan People’s Party was satisfied with the plans, while the Left-Wing parties warned that they would harm the middle classes. The Catalan President also sent a warning to the next Spanish Prime Minister: a new “fiscal agreement” for Catalonia might be “one of the few opportunities left” to rebuild relations with the rest of Spain.

The trade union organising the protest has said that 70% of doctors took part in the strike, while the Catalan Ministry of Health reduced the figure to only 20%. Doctors are protesting at the budget cuts in the Catalan healthcare system in order to decrease the public deficit, which included a 5% salary reduction. The doctor’s union called for a strike on November 15th and 16th, coinciding with the negotiations on the 2012 budget and the Spanish elections. The Catalan Government stated that the strike asks for unrealistic salary increases and considered it has “failed”. 20,000 medical consultations have to be postponed.

Andreu Mas-Colell, former Harvard Professor and the current Catalan Finance Minister, travelled to London to meet with financial representatives. The objective is to explain, first-hand, the Catalan Government’s austerity plans and its efforts to reduce the deficit and to foster the economic recovery. Mas-Colell met with City investors, banks and media, such as the ‘Financial Times’.

The Catalan Government is obliged to reduce the public deficit and the public healthcare system is also subsequently affected by the budget cuts. Doctor and nursing unions are mobilised, while salary reduction and temporary lay offs are being discussed. Waiting lists have increased due to some hospital services being partially and temporarily closed, especially during the summer months. Many citizens have been protesting, in different demonstrations. The Catalan Health Ministry announced new maximum waiting times for severe interventions. In addition, some hospitals are reopening some operating rooms.

The Catalan Government has approved the new Law of Budget Stability, which foresees a gradual and significant reduction of the deficit in the following years. The law permanently fixes an allowed deficit limit of 0.14% of Catalonia’s GDP from 2018, two years earlier than the deadline required by the Spanish Constitution’s modification. According to the Catalan Finance Minister, Andreu Mas-Colell, the law demonstrates Catalonia’s “strong commitment to budget stability”. In addition, the law creates a fund to return public debt, which will be filled with any additional revenues or budget surplus.

The rating agency Fitch reduced Catalonia’s long term debt’s appreciation, going from A to A- because of the expected weak economic growth. Nevertheless, Fitch recognised the efforts to reduce the public deficit carried out by the Catalan Government. Fitch has lowered the debt rating of five Spanish Autonomous Communities and given others a negative perspective for the future. The Catalan Ministry of Finance thought that the reduction is due to “the international situation” and stressed that efforts are already made.

The Constitutional amendment limiting public deficit in Spain has been only approved with the votes from the PSOE and the PP at the Spanish Parliament. Four parties decided to quit the plenary room at the moment of the voting, whilst the Catalan moderate nationalists and the Basque moderate nationalists stayed but decided not to vote. They complained about the way the Spanish Socialist Party (PSOE) and the People’s Party (PP) have negotiated and agreed on the second constitutional reform without the input of the other parties.

Meanwhile, the Catalan Government, run by the Centre-Right Catalan Nationalist Coalition ‘Convergència i Unió’ (CiU), announces its own law on budget stability. The CiU feels excluded from the reform of the Spanish Constitution to limit public deficit, especially as they had been one of the key actors when negotiating and approving the Constitution in 1978. The CiU’s Spokesperson warned that, since “the Constitutional consensus” had been broken by the PP and the PSOE, “a great clash with unforeseeable and undesired consequences will happen” if nothing changes.

Main Catalan forces share the need to control public spending and balance public finances but many fear the proposed measure could be used to trim Catalonia’s self-governance. In this line, the Catalan Government’s spokesperson asked Catalan parties to frontally oppose to any measure limiting fiscal autonomy. However, other Catalan politicians are open to discussion but “want to look at the small print”. Furthermore, the Spanish Parliament also approved the fiscal measures announced last week, by which the State will save around 5,000 million euros this year.

The Spanish Government temporary reduces the VAT on new flat’s purchase, asks the largest and profitable companies to advance money from their corporate tax, and obliges doctors to prescribe generic drugs and not brands. With all those measures, the Spanish Government expects to get 4,900 million extra euros until the end of the year.

Mas told reporters that he does not enjoy making such cuts but they are necessary to keep Catalonia from bankruptcy

PM Zapatero today proposed an expenditure limit for the Autonomous Communities before the Spanish Parliament . The Spokesperson for the Catalan Executive considers it an attack to self-governance and fiscal autonomy. In addition, he stressed that the Catalan Government is the only administration in Spain, at all levels, that has cut its expenditure by 10% in one year. He also asked the Spanish Government to make its own adjustments and pay what it legally owes to the Communities, and to Catalonia in particular.

The European Commission also recognised "a different effort" to the rest of Spain’s Autonomous Communities. Brussels said so when on Tuesday it asked Spain “to strictly control” the public “deficit and debt of regional governments”, the day after Moody’s rating agency warned about Catalonia’s expected deficit for 2011. The Spanish Government took note from this particular recommendation but not the other made by Brussels, which included increasing energy taxes and VAT. The Catalan Government criticised Moody’s for “creating alarm” with assessments that do not take into account the whole situation. In addition, it denounced how the Spanish Government has reduced its own deficit by transferring it to the Autonomous Communities.

The leader of the Conservative and Spanish Nationalist People’s Party visited the Catalan Parliament today. There, he supported the Catalan Government’s claim and asked Spanish Prime Minister Zapatero to fulfil his legal obligations towards Catalonia and pay the money his Government owes.

In the last elections, the elimination of the tax was one of the main promises of the Centre-Right Catalan Nationalist Coalition, Convergència i Unió (CiU), which controls the Catalan Government. From January 1st 2011, first and second degree relatives will have a 99% bonus on this tax. The decision has been taken in the middle of the debate about public expenditure cuts.