deficit

Catalan Vice President, Oriol Junqueras met this Thursday with his Spanish counterpart Soraya Sáenz de Santamaría in what Junqueras described as a “very cordial but very difficult” encounter. One of the main subjects laid on the table revolved around the recent suspension of several Catalan laws by the Spanish Constitutional Court (TC). In reference to this, Junqueras accused the TC of acting according to “political interests” rather than considering those of the citizens and asked Sáenz de Santamaría to reconsider the suspension of the Catalan law against energy poverty, as they announced a few weeks ago. Junqueras regretted that the Spanish executive is only temporary “when it is in their interest”. Junqueras, who is also Catalan Minister for Economy and Tax Office, also referred to Catalonia’s deficit target set by the Spanish government and described it as “unfair, arbitrary and far from what citizens deserve”.

The Catalan vice president and Catalan Minister for Economy and Tax Office, Oriol Junqueras, stated that the Government “won’t make any cuts”and emphasised that Catalonia already allocates 70% of its budget to social policies and that 90% of the Government’s expenses are final. Junqueras’ statements come after the Spanish Finance Minister, Cristóbal Montoro, sent a letter to several Autonomous Communities in Spain urging them to “comply with the budget stability”. Montoro also nuanced that Catalonia’s deficit target in 2015, which was 2.7%, surpassed the maximum deficit established by the Spanish government by 0.7%. “If the Spanish Ministry wants to make cuts or shut down hospitals, it will have to come and do it itself”, warned Junqueras. He also emphasised that “the Spanish Finance Ministry has imposed so many cuts in the last years that any additional ones are simply inapplicable”.

The proportion of investment earmarked for Catalonia in next year’s Spanish budget will be 10.7% of the total, a figure that the Catalan government spokeswoman, Neus Munté, considers totally insufficient. “It is far from the 19.8% Catalan contribution to the Spanish GDP or from the 16% that citizens living in Catalonia represent”, she said on Tuesday after the Spanish government defended the figures in the Spanish Parliament in Madrid. Munté regretted that cultural investment in Catalonia will plummet: the Spanish government will spend three times more money on three museums in Madrid than on all the museums of Catalonia. According to the Spanish Minister of the Treasury, Cristóbal Montoro, the budget is “what Spain, its economy and its citizens need”.

Catalan companies sold abroad some €31,899.9 million worth of goods and services between January and June this year, which represents a 7.16% increase on the figures from the first six months of 2014, according to information released on Tuesday by the Spanish Ministry for the Economy and Competitiveness. Catalan exports have never before reached such a high sales volume for a six-month period. Not only this, the level of international sales registered during June alone also broke all previous records for this month, coming in at €5,662.1 million. Indeed, almost month after month Catalonia's export records were broken during the first half of this year and the Catalan economy has seen exports rocket during the last 3 years. In Spain as a whole, international sales have also broken all previous records in the first half of 2015, reaching 125,122.9 million, a 4.9% growth on figures from the first 6 months of 2014. Thus, the Catalan economy generated 25.49% of Spain's total exports, while representing 19% of its GDP and 16% of its population.

The Spanish Socialist Party (PSOE) closed the door Monday on supporting a hypothetical specific economic agreement between Catalonia and Spain, similar to the specific fiscal pact already in existence for the Basque Country, which would recognise Catalonia’s “specificities”, strengthen its self-rule and better fund its institutions, public services and infrastructure. However, the PSOE did urge the Spanish Government “to update” the current inter-territorial fiscal scheme in order to improve the funding of Autonomous Communities such as Catalonia, calling for “a fairer and more equitable model”. A majority of Catalan society has been asking for such a fiscal agreement for many years, which would help reduce the chronic fiscal deficit while keeping solidarity with poorer regions.

The Spanish Minister of Justice, Rafael Català, proposed this week "to study a constitutional reform" that is very far from making any concession to Catalan claims and meet them halfway. In fact, it seems that the Spanish Government's real intentions are to consolidate the recentralisation of powers and cultural homogenisation undertaken in the last few years that have trimmed Catalonia's self-rule and attacked Catalan culture and language. The Spanish Justice Minister stated this week that he is ready to discuss a limited reform of Spain's Constitution that would not affect its core aspects – such as Spain's territorial model – and which would apparently only address secondary matters, such as the prevalence of men over women in the Crown's succession or the definition of the Spanish Government's exclusive powers. However, the aim is to put an end to the decentralisation trend that started in the late 1970s and early 1980s.

The President of the Catalan Government, Artur Mas, has stated that the independence process will be officially launched if pro-independence parties obtain an absolute majority of the MPs elected in the forthcoming Catalan Parliament elections, to be transformed into a ‘de facto’ plebiscite on independence from Spain. Mas emphasised that during the last 3 years, Catalan parties have been trying to organise a legal and mutually-agreed vote but that the Spanish Government has not wanted to talk even about it, despite more than 1.5 million citizens demonstrating each year on the streets and the results of the previous Catalan elections of November 2012. However, Mas stated he would still “exchange the forthcoming elections for a mutually-agreed referendum”, but highlighted that the Spanish Government has only left the transformation of regular elections into a plebiscite for Catalans to freely and democratically vote on their future as a country, an option that Mas already identified as the last resort in 2013. Therefore, according to him, “in elections, MPs are counted”, “if we were having a referendum we would be counting votes, but this is not the case”, he stressed.

The Spanish Government has presented its budget for 2016 and once again its investment in Catalonia is very far from being in line with the Autonomous Community’s GDP or population share within Spain. According to the planned budget for next year presented this Tuesday (many months in advance for electoral reasons), the Spanish Government plans to allocate only 10.7% of its territorial investment to Catalonia, even though the Catalan economy represents 19% of Spain’s overall GDP and Catalans make up 16% of Spain’s population. The amount planned for 2016 is however a bit higher than that allocated for 2015, which was only 9.5% of Spain’s total, the lowest in many years and widely interpreted to have been in retaliation for independence claims. The amount for 2015 was €1,072.3 million and that for 2016 is €1,179.5 million, which means a 10% increase (+€107 million) but is still one of the lowest investments in decades, both in percentage and absolute terms. Nevertheless, the Madrid-based media has focused on this increase, presenting Catalonia as a clear winner and forgetting about the extremely low investment levels from 2015 and 2016.

Despite the fact that all the Autonomous Community governments that are not run by the People's Party (PP) requested the Spanish Executive  – run by the PP – to allow them a greater deficit in 2016 and that Spain's independent fiscal authority Airef also recommended granting regional governments greater deficit targets for next year, the Spanish Finance Minister, Cristóbal Montoro, has rejected doing so. In 2016, the Autonomous Communities will have to close their budgets with less than a 0.3% deficit, "an absurd" and "unrealistic" figure according to the Catalan Finance Minister, Andreu Mas-Colell, who was recently awarded an honorary PhD in Economics by the University of Chicago. The Catalan Government asked for a 0.88% deficit target for 2016. Besides this, next year the Catalan Executive will receive €1.2 billion that should have already been transferred by the Spanish Executive but was not, due to Montoro's tax revenue miscalculations. In addition to this, since economic activity is growing, the Spanish Government will increase the Catalan Executive's funds by €700 million each year from 2016 onwards.

The President of the Catalan Government, Artur Mas, presented on Monday the model for Catalonia's own Treasury, which will be developed should "the political conditions" be there, he stated. "This is the most serious attempt to build our own Treasury in the last 300 years", stressed Mas. "After two years of work, we are ready" to launch and Catalans should not waste "this great opportunity", he stressed. "Without our own Treasury, there is no real self-government", the Catalan President stated. The system would include Catalonia's own Tax Agency and  is inspired by the taxation authorities in countries such as Sweden, Denmark and Australia, which prioritise cooperation with taxpayers over controlling them. In these models, efforts are concentrated on severely persecuting tax evaders and underground economy, while the vast majority of tax-payers who deal correctly with their fiscal obligations receive assistance and have unlimited access to their fiscal data.

In times of economic crisis, the Mariano Rajoy-led Spanish Government has been making recentralisation a main driver of its political agenda, using the economic recovery as the reason for passing the reforms. An additional step in this direction was taken on Monday with a new regulation forcing Spanish Autonomous Communities to seek permission from the Spanish Ministry of Finance before granting loans and guarantees to private companies located in their territories. From now on, Madrid's permission will be conditional upon the applicant's compliance with deficit targets. The new regulation substantially curbs the Autonomies' powers to shape their industrial policies, following a reform passed in May that modifies both the Organic Law for Financing the Autonomous Communities and the Organic Law on Budgetary Stability and Financial Sustainability.

The International Monetary Fund (IMF) has reviewed and improved its economic growth forecasts for Spain, going from a 2.5% growth rate for 2015 forecast in April to a 3.1% one foreseen this June, and from 2% to 2.5% for 2016. However, the IMF has also issued recommendations and warnings, emphasising that Spain will have to carry out "additional fiscal efforts" and "structural reforms" in order not to jeopardise the country’s economic recovery. The IMF recommends that Spain reduce the costs of public healthcare and education by making users pay for part of the services. According to the international organisation, Autonomous Community governments – such as Catalonia's – should have greater fiscal responsibilities in such systems since they exclusively manage them. In this vein, the IMF has praised the fiscal consolidation efforts undertaken over the past few years by regional governments and has asked for an increase in their funding and fiscal powers, as well as for the adapting of the deficit targets to their needs.

The Catalan Government has sent another warning message about its lack of liquidity, which depends on the Spanish Executive’s regular transfers since most taxes are collected by Madrid-based services. The Catalan Minister for the Presidency, Francesc Homs, accused the Spanish Government of "deliberate asphyxia" and asked the rest of the Catalan parties to "pool together" to denounce the situation. According to Homs, such financial asphyxia will affect everything except salaries. All Catalan Government departments will be affected and their payments to service providers will be delayed. The Catalan Finance Minister, Andreu Mas-Colell, already warned about this financial asphyxia on previous occasions. In the coming days, Mas-Colell will meet with the rest of the parties to discuss the situation. However, the Spanish Finance Ministry rejects the accusation and has stated that it has made all the pending transfers.

The Autonomous Community governments, such as the Catalan Executive, cannot meet the deficit objectives imposed by the Spanish Government because of the current inter-territorial fiscal scheme, according to a report from the Spanish banking giant BBVA. The bank has published two studies on two consecutive days that shed some light on this scheme and its consequences. In the first report, the BBVA states that spending per capita on basic Welfare State services, such as healthcare and education, varies by 60% among the Autonomous Communities. A second report highlights that the Spanish Executive reduced the funds for the Autonomous Community governments in 2014, despite the economic situation and the intake of public revenue improving. On top of this, it refuses to review a fiscal scheme that legally expired 16 months ago and that was designed before the financial crisis.

The fee that was temporarily charged on each drug prescription in Catalonia between June 2012 and January 2013 has started to be refunded by the Catalan Government, after the Constitutional Court definitively banned it in May 2014. The decision came after an appeal from the Spanish Government, despite the People Party (PP) initially having supported the measure in spring 2012. However, after the Catalan Government started to back independence from Spain in autumn 2012, the PP decided to oppose the drug prescription fee. The measure had been adopted to reduce pharmaceutical spending, with the final goal being to reduce public deficit. In the short period the fee was in place, €45.7 million was directly earned but much more was saved, since drug spending dropped by around 23%. According to the Catalan Government's calculations, so far 100,000 euros has already been returned to approximately 5,000 people and about €6 million will be returned in total. So far, 300,000 people have filed the request, with an average of €20 per person.