deficit

In the last three years, 1,060 companies have moved their headquarters from Catalonia to the region of Madrid, according to a report published by Madrid’s regional Government. The report states that most of them took the decision because of the lower taxes that exist in Spain’s capital, compared to other areas such as Catalonia. Since 2010, 5,000 companies based in the rest of Spain decided to move to Madrid; 21.4% of them were from Catalonia. Paradoxically, 43 cents out of every euro paid in taxes in Catalonia is to pay for investments and services made in other parts of Spain, which turns into an annual fiscal deficit of 8.5% of Catalonia’s GDP, meaning that Catalans are obliged by the Spanish Government to give away €16.5 billion. Meanwhile, the Catalan Government is under-budgeted and obliged to implement severe budget cuts and raise taxes to balance the budget.

The number of public employees in Catalonia has been reduced by 4.76% over the last year, while in the whole of Spain the reduction was of 3.97%, due to the budget cuts in the public sector. However, the number of civil servants in Catalonia was already significantly lower than the Spanish average, according to a study issued by the SME association PIMEC. In January 2013, there were 40.7 civil servants for every 1,000 inhabitants in Catalonia, while the Spanish average was 57.4 and it reached 79.6 in the Autonomous Community of Extremadura. In fact, 26.7% of the Extremadura’s workforce is employed in the public sector, while the percentage drops to 11.1% in Catalonia. PIMEC stated in its report that, if Catalonia had the same proportion of public employees as the Spanish average, its unemployment rate would drop from 24.5% to 20.5%, with 150,000 fewer jobseekers.

Since 1986, the Catalan Government has its own lottery system, which brought a profit of €40 million last year. The Catalan lottery administration dedicates 60% of the revenue to prizes and the remaining 40% to finance public policies. In total, there are six lottery games, including scratch cards and lotto draws, but there are no specific draws for special days, as exists in the Spanish Government’s Christmas Lottery. After a proposal from representatives of shopkeepers’ associations, the Catalan Executive decided to launch a similar Christmas draw, with tickets worth 5 euros. 80% of the revenue will go towards prizes and 20% will finance children’s assistance programmes. €15 million will be put on sale. The opposition has been surprised by the initiative and stated they were hoping it was not the only measure to increase revenue.

The President of the Catalan Government, Artur Mas, officially announced on Tuesday that last year’s budget will be extended for the whole of 2013, since the 1.58% deficit target imposed by the Spanish Executive is too low and arrives too late. However, he explained that the budget extension guidelines will meet the 1.58% deficit target, because otherwise they would not have the money to pay for the additional spending. Furthermore, Mas announced they will take the “unfair and illegal split” of the deficit targets among the different government levels to court, since they consider the Spanish Government has not done it “in a proportional way”, since it keeps most of the deficit allowed for Spain’s total public sector for itself. Some opposition parties have strongly criticised the Catalan Government for extending the budget.

“2013 is done. We now need to think about 2014”, summed up the Catalan Finance Minister, Andreu Mas-Colell, after finding out about the 1.58% deficit target imposed yesterday by the Spanish Executive. Mas-Colell considers this target to be “intolerable” since it “asphyxiates” Catalonia. The Catalan Executive was waiting to find out this figure to approve its definitive budget for the current year, but considering the low deficit target it is now considering extending the 2012 budget for the whole of 2013 – as it has been doing so up until now. The Catalan Government will make the final decision on the issue next Tuesday. Furthermore, Mas-Colell warned that a €1.7 billion budget adjustment will be needed in 2014 that will be required to increase one-off revenue since the Catalan Government “cannot spend less than in 2013”.

The Catalan Finance Minister, Andreu Mas-Colell, accuses the Spanish Government of “asphyxiating” the Autonomous Communities. The 1.58% deficit target imposed to the Catalan Government represents €2.6 billion of further budget adjustment compared to last year’s budget, which ended with a 1.96% deficit. Mas-Colell denounced that the Spanish Executive is “keeping for itself the greatest share of the deficit pie”, while it is only responsible for 50% of Spain’s public spending. The Spanish Government is setting itself a deficit target of 5.2% for 2013 and most of the flexibility allowed by the European Union, which authorised a 6.5% deficit for Spain’s total public sector. Meanwhile, the Autonomous Communities have a deficit target 4 times stricter, although they manage 36% of Spain’s total public spending as well as basic services such as healthcare and education.

In March of this year the Catalan Supreme Court (TSJC) cancelled the Catalan Government’s allocation of the publicly-owned Aigües Ter-Llobregat (ATLL) – which supplies water to the 5 million people of Greater Barcelona – to the joint venture led by Acciona and including the Brazilian investment bank BTG Pactual. The Government presented an appeal but the TSJC confirmed on the 19^th July its previous decision. Now, the Catalan Government has decided to take the issue to Spain’s highest court to defend the allocation. The Government is convinced the tender process was done correctly, but the other main contender, Agbar, states the opposite. In addition, a Catalan Government’s internal body overlooking public tenders stated that Acciona’s offer should not have won.

The Catalan president argued that if strict deficit targets are imposed upon his government budget again, it will be impossible to promote growth and create jobs, thus affecting the economy of Catalonia, Spain and the whole of southern Europe. The Spanish government will publish in the next few days new regional deficit targets for 2013 and Catalonia is asking for more flexibility. “If they do not offer us what we need, we won’t be able to stimulate our economy, and if we can’t do that, the whole of Spain and southern Europe will be affected”, stated Mas.

The Catalan Executive has published the liquidation of Spain’s fiscal redistribution scheme of 2011. That year, Catalonia was the 3rd Autonomous Community paying the most taxes per citizen in Spain, with a 119.1% rate if the average were 100%. However, after the Spanish Government’s redistribution of money through services and investments, Catalonia was the 10th territory in spending per capita, with a 99.4% rate, below the average. In 2011, Catalonia received €16.91 billion, 3% less than in 2010. The region of Madrid was the Autonomous Community paying the most, since Spanish Government bodies and many multinational companies are based there. It was followed by the Balearic Islands, which received 12.3 million tourists while its population is just 1.1 million.

On Tuesday, the Spanish Finance Minister, Cristóbal Montoro, stated before the Senate that the Spanish Government “was financing the services” the Catalan Executive provides. In an angry and agitated tone, Montoro concluded the intervention shouting “Do you understand?! Don’t you understand?!” to the Catalan Senator who had asked him about the recentralisation of power. The President of the Catalan Government, Artur Mas, answered the Spanish Finance Minister in a calm but angry tone: “the Catalan Executive finances public services thanks to the effort Catalan citizens make each day by producing, working and paying taxes. And from all the taxes paid by Catalan citizens, a large amount, as much as €16 billion leaves Catalonia and never comes back [after the Spanish Government’s redistribution]. Who the heck is funding whom? It’s Catalonia that funds the Spanish State from many points of view”.

The Catalan Ombudsman, Rafael Ribó, accused the Spanish Government of trying “to manipulate” data in its report last week, in order to push forward a recentralisation reform, which “goes against the self-government principle”. Ribó explained that the Spanish Ombudsman undertook 33,849 actions in 2012, which means each action cost an average of €428. In addition, it refused to accept 20,164 complaints. Meanwhile, the Catalan Ombudsman undertook 25,073 actions, with a cost of €279 each. The Catalan institution only rejected 267 complaints. Regarding resolutions and recommendations, the Spanish Ombudsman issued 548 while the Catalan body issued 3,635. This means that each resolution by the Spanish body cost €26,447 while the Catalan’s cost €1,925, which is 13.75 times less.

The Catalan Government will continue to occupy the facilities as a tenant, annually paying €16.2 million in rent over the next 20 years. The decision to sell Catalan Government properties had been taken to ease the difficult financial situation and obtain liquidity. The initiative is part of the austerity measures adopted to reduce the public deficit and increase revenue. Taking this last sale into account, the Catalan Government will have sold 17 properties for a total of €266 million since 2012. The Catalan Minister for the Presidency, Francesc Homs, emphasised that the revenue generated by these sales will allow the Government to undertake fewer budget cuts.

On Friday, the Spanish Government approved a €37.7 billion reform of Spain’s public sector which fosters the elimination of Autonomous Community bodies considered to be “redundant”. Instead of directly obliging the Autonomous Communities to eliminate them – which might be very tricky legally speaking, the Spanish Executive will link their suppression to the deficit targets allowed to the regional governments and the funds provided. However, in the case of Catalonia, most of the bodies included in the reform are recognised by Catalonia’s main law, approved in 2006 by the Spanish Parliament and through a binding referendum. The Catalan Government and most of the political parties are accusing the Spanish Executive of trying to recentralise Spain. In addition, the Catalan President said that unfortunately Madrid “teaches lessons” but “does not do its homework” and eliminates Ministries without competences.

The Wealth Transfer Tax, which is levied on sales of second-hand housing units and any other used real estate, will be raised from 8% to 10% as from the 1st of August. The Catalan Government expects to earn an additional €50 million in 2013 and €150 million in 2014. The Catalan Finance Minister, Andreu Mas-Colell, argued that the rise in the tax rate is equivalent to the VAT charged on sales of new housing units and that both taxes should be “parallel”. He also added that other Autonomous Communities had previously raised this tax to similar levels.

According to the current legislation, the Spanish Government has to invest 18.9% of its total transport infrastructure budget in Catalonia between 2007 and 2013 in order to compensate for an historical lack of such investments. However, according to the Spanish Transport Ministry’s budget execution reports and the projections made by the Chamber, the Spanish Government is far from honouring this legal obligation. Not only have investments in Catalonia not increased in relative terms, but they have been reduced to a “historical minimum”. While the planned budget for transport investments has been reduced by an average of 36% throughout Spain due to the economic crisis, in Catalonia it has dropped by 50%. Furthermore, 87% of the planned budget was executed throughout Spain, while in Catalonia Madrid only executed 68% of it.