Fiscal and Financial Policy Council
Business 28/07/2021

Financial oxygen for Catalonia

The Generalitat will receive €21bn in advances from the Treasury in 2022, 6.8% more than the previous year

4 min
The Minister of Economy Jaume Giró during the press conference after the Council of Fiscal and Financial Policy

MadridThe Spanish government says it has given autonomous regions economic oxygen after the Fiscal and Financial Policy Council (FFPC) met on Wednesday. The Ministry of Finance has informed regions they will receive €112.2bn in advance funding for 2022, a 6.3% increase on the previous year. Of this amount, ARA has learnt, Catalonia will receive €21bn, an 6.8% increase on 2021.

"[Regions] will receive the largest delivery of advances in history," said the Minister of Finance, Maria Jesus Montero, at a press conference after the FFPC. "The government wanted to shield regions and avoid their funding system being hit by the crisis," Montero insisted. Last year, the regions received €105.6bn in advances for 2021, a figure which was lower than in 2020 due to the drop in revenue resulting from the coronavirus crisis.

This, however, was only one of the ten points on the agenda of a FFPC that lasted more than five hours and once again brought together the Ministry of Finance with the economic representatives of the different regions. Among them was the Catalan Minister of Economy, Jaume Giró. This was a marked change as his predecessor over the past years boycotted the meeting. Giró made a positive assessment of the meeting: "I did not have very high expectations nor much margin, but the assessment is undoubtedly positive," Giró said at a press conference.

One of the thorny issues of this FFPC was to choose a formula for regions to pay back excess funding from central government in 2020. This is due to special pandemic measures, which allowed the Spanish government to transfer funds without taking into account public revenue. In this sense, the Spanish Finance Minister has explained to regional ministers that next year "they will receive an additional transfer" to cover these negative settlements, so that they cover the money they would have to return. In total, the Treasury will approve a transfer of about €3.9bn that will be linked to the state budget for 2022.

"Many ministers asked to adopt a measure to alleviate this situation," said Montero, who has defined it as "extraordinary". In fact, one of the most concerned communities was Catalonia, as Giró himself has recognised. "For Catalonia the negative liquidation was especially relevant, about €1bn that we will now not have to return," he announced. Giró applauded the fact that a different solution from the 2008 crisis was sought, when regions were given twenty years to return the money to the State. Catalonia is still paying this back.

End of the VAT conflict

Also at stake was the historical folder around the VAT conflict pending from 2017 and that, after this CPFF, seems to have come to an end. Montero has announced the approval of a budget item of 3,000 million in 2022, also linked to the general budgets of the State , to solve the economic damage that meant for the autonomous communities the regulatory change applied to VAT by the government of Mariano Rajoy in 2017

This reform meant that the communities lost a month of collection of this tax. That is, when the State had to liquidate the VAT tax of 2017 to the autonomies two years later, in 2019, it only paid an amount equivalent to eleven months of that year and not the whole year. Now with this transfer you want to "compensate for the negative impact" of the reform of the Popular Party, Montero has defended.

Since then, the autonomies have been claiming to receive the liquidation corresponding to the missing month and some have even brought it to court, to the point that the Supreme Court ruled - in the case of several autonomies - that the Sido had to pay the amount that was pending. So far the Generalitat has put the outstanding VAT settlement of 2017 at about 443 million euros. A debt that is now "saldat", Giró said

These 3,000 million are in addition to the 3,900 that the Treasury will also transfer to alleviate the negative liquidity. The two transfers will be conditional on the general state budget for 2022 and, therefore, will need the approval of the public accounts to choose forward. "I trust that they come out," Montero has emphasized.

However, not everything has been to throw rockets. Giró has regretted that the Ministry of Finance has not finally yielded to increase the reference rate of deficit for the communities - essential to develop their budgets - and that has been set at 0.6%, a figure slightly lower than that of the previous yeara figure slightly lower than last year. Despite the fact that the fiscal rules are suspended and, therefore, this rate is not mandatory, the Generalitat will adjust for "financial prudence" and "not have problems when it comes to paying bills," said the Minister of Economy.

The Government asked that the deficit margin was 1.1%, because, according to their calculations, would mean being able to have 1,000 million euros more for the preparation of budgets. "It will be easier to make the budget, but it will be difficult to meet the needs of the country. The limits are what they are, but now it is not appropriate to remember all the deficits that the State has [with Catalonia]. With what we have, we will make the best possible budgets," Giró concluded.

European funds

The Spanish government has also confirmed the distribution of an additional €13.5bn of European funds included in the state budget for 2021. Finally, the money will be distributed under the criterion of "adjusted population", an option that sources at the meeting say that "was chosen by most communities," although some like Catalonia and Madrid preferred to take into account other indicators such as GDP. According to the first calculations of the Generalitat, Catalonia will receive about €2.2bn which Giró anticipated would go towards health, social rights and education, "the areas most affected by covid".

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