Far from federal models: neither shielded ordinality, nor revenue collection, nor full regulatory autonomy

BarcelonaHe new model of regional financing The system presented this Friday by the Minister of Finance, María Jesús Montero, represents a change from what is currently in force, but it falls short of the systems in place in other territories where Catalan nationalism has often been reflected in proposing reforms to the system that would allow the Generalitat (Catalan government) to obtain more resources and reduce the disparities between what Catalonia contributes to the State and what it receives. The system presented by the minister is far removed from the foral models constitutionally guaranteed in the Basque Country and Navarre, but also from federal systems like those of Canada, Switzerland, and Germany, which grant regions the power to collect taxes and place maximum limits on solidarity between territories to prevent wealthier regions from ending up with fewer resources than poorer ones.

Spanish singularities

Basque Country and Navarre

The two chartered communities of Navarre and the Basque Country are the elephant in the room in the debate on financing in Spain, because every time Madrid denies Catalonia the transfer of powers in tax matters, Catalan politicians point to these two autonomous communities as examples of regions with unparalleled fiscal autonomy in Europe, beyond even near-independent jurisdictions (like Gibraltar). The system is simple: the Navarrese government and the three Basque provincial councils each have their own tax agency that collects all taxes within their territories.

Each year the governments of both autonomous communities negotiate bilaterally with the Spanish government a transfer (the so-called quota) with which both communities compensate the central government for the services and investments provided in their territories or to their inhabitants. This negotiation and, above all, the method for calculating the transfer—which includes a very small element of inter-territorial solidarity—are quite opaque and have never been the subject of political dispute in Spain, whether the PSOE or the PP has been in power.

What the special tax system does not allow, however, is additional regulatory power over taxes; rather, it is very similar to that of the other autonomous communities.

Canary Islands

The Canary Islands are largely forgotten in the debate on regional financing. As a peripheral region of the EU, they have the IGIC, a substitute for VAT (with substantially lower rates) that is collected entirely by the regional government. Apart from this, in all other taxes, the archipelago remains within the common tax system with the other autonomous communities, except for the two with special fiscal regimes.

International Models

Germany

As a federal country, a member of the European Union and the euro, and one of Spain's main trading partners, Germany is often the first example cited by proponents of a more decentralized financing model, both federalists and sovereigntists. The German system grants broad management powers to the governments of the Länder (as the states of the federation are called), but little regulation. Thus, regional tax agencies collect the bulk of the taxes, but it is the central government that sets the amount to be paid. As in Spain, revenue is distributed among the administrations according to a percentage of each tax.

The system includes an element of horizontal solidarity; that is, a transfer of funds from richer to poorer regions to equalize incomes, although limited and with the impossibility of a land that a poor person ends up having more money per capita than a rich one: what is called the principle of ordinality that the Catalan parties demand so much and that the new model presented this Friday by Montero still does not legally protect, although there is an effort to ensure that it is fulfilled in the case of Catalonia.

Canada

Canada is another example often cited in Catalonia when discussing funding. The reasons, in this case, are more political and stem from the existence of Quebec: a Canadian province with its own culture and language that held two independence referendums in the second half of the 20th century. In the Canadian system, the Quebec government has its own tax agency that collects all taxes, while in the rest of the country's autonomous territories, the federal agency does so directly (there is a second exception, Alberta, which collects corporate income tax). This differs from the current Spanish model and the one presented by the Minister of Finance, which does not foresee transferring tax collection to Catalonia, although the Catalan Republican Left (ERC) and the Spanish Socialist Workers' Party (PSOE) are negotiating this in parallel, and it should begin to be implemented with personal income tax (IRPF) in a few years.

Also, unlike the Spanish system, in Canada each province has full autonomy to impose the taxes it wishes, at the levels it wishes, so many taxes are duplicated: there is a provincial consumption tax (what in the EU is VAT) and a federal one, etc. It is a system similar to the personal income tax in Spain, which has a regional and a national component.

In addition, there is a system of vertical equalization transfers, meaning that the Canadian government pays (this implies, however, that the bulk of the money comes from central government revenue in wealthy areas and is transferred to poorer ones), but also with the legal limitation of the principle of ordinality.

Switzerland

Like Germany, Switzerland is a European federal state, but in this case, it is outside the EU. However, its system is, on paper, more similar to Canada's: Swiss states and the national government have the power to create their own taxes, albeit with limitations to prevent dumping. Fiscal. As in Germany, however, local authorities collect the money and transfer their share to the central government. Switzerland also includes inter-territorial transfers to level the playing field between rich and poor, which in this case are supplemented by transfers from the Swiss government—a system that would now be applied in Spain if Montero's proposal is ultimately successful. As in the two previous cases, the poorest territories cannot end up receiving more per capita than those that contribute the most. Scotland

When Scotland regained home rule in 1997, it initially received few taxing powers, but these were increased following the failed independence referendum of 2014, and it now has regulatory authority over income tax and other levies, such as property taxes. However, collection remains the responsibility of the British tax agency.

United States

The tax system in the United States is highly intricate, granting broad regulatory and administrative powers not only to the federal government and the governments of the 50 states, but also to lower-level administrations (municipalities and counties). This extensive regulatory autonomy leads some U.S. states, such as Delaware, to be considered tax havens. As in Canada, each state can enact its own taxes, which coexist with federal taxes. For example, there is a federal income tax that all citizens must pay, but nine states do not have their own, although some municipalities do impose them. Furthermore, each level of government has its own tax collection agency.