fiscal deficit

Long-standing fiscal deficit complaint of pro-independence parties set to continue, despite more money granted than in 2021

The Spanish president, Mariano Rajoy, is not going to offer a new fiscal deal to Catalonia similar to the one already enjoyed by the Basque Country and Navarre. In an interview with Spanish radio, Rajoy said that he is against such a deal because it would “create enormous problems” in Spain. The People’s Party leader also confirmed that he will never allow a referendum on independence in Catalonia. “I cannot do it and I don’t want to do it”, he said, after the Catalan President, Carles Puigdemont, stressed in Brussels that his government wants a referendum agreed with Spain. Rajoy warned that he won’t act “against Spanish unity, national sovereignty or the equality of all Spaniards”. “For me, the 7 million Spaniards that live in Catalonia are the same as those in the rest of Spain”, he stated.

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”.

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.