Misc 07/08/2020

The fiscal abuse on Catalonia: same old, same old

It is not normal for Catalonia to rank 12th in Spain’s social progress index (SPI) by region

Albert Carreras
3 min
La seu de la conselleria d'Economia aquest divendres al matí, després que hagin retirat la pancarta amb el llaç blanc

It is annoying to have to insist on something that is already widely known, but the Spanish administration has recently released two sets of very meaningful data and they leave me no choice. On 27 July Spain’s official statistics service (INE) published the regional accounting figures for 2019, which provide the GDP per capita by region. It is the same ranking as in recent years, with Madrid taking the top spot: its GDP per capita is 36 per cent higher than the Spanish average. The Basque Country is the runner-up, with 30 per cent, followed by Navarre (24 per cent), Catalonia (18 per cent), Aragon (10 per cent), plus the Balearic Islands and La Rioja, both at 6 per cent. Extremadura is the poorest Spanish region with a GDP per capita that is 26 per cent below the national average. As has been happening for too many years, the INE has not released any data about prices per region, so it is impossible to express those figures in terms of purchasing power parity. By the Catalan government’s own estimate, Madrid’s lead would drop to 16 per cent, whereas Extremadura’s disadvantage would only be 11 per cent. This means that the actual differences might be much smaller. It would be extremely useful to have the INE’s official figures.

The second novelty, which came on 30 July, is the payment of the 2018 regional allowance. Once we know all the data that have a bearing on the amount which every region is entitled to, Spain’s central government makes the transfer. This information has revealed that in 2018 Catalonia dropped from the third to the tenth place out of the fifteen Spanish regions who share the same funding system [Navarre and the Basque Country have their own, rather advantageous system]. If we adjust the figures in terms of purchasing power parity, then Catalonia drops down to the penultimate slot. Besides Catalonia, only two other regions are net contributors: Madrid, which drops from the top slot down to the eleventh place in terms of the payout received —and all the way to the bottom of the list once you adjust that by purchasing power— and the Balearic Islands, which is the second largest contributor, but ranks ninth on the amount received and eleventh by purchasing power.

This funding model shouldn’t be confused with the fiscal balance. The funding model combines revenue that pertains to the regional government —and, therefore, does not feature in the national budget— with revenue provided by the State which aims to narrow the gap between regions. It is a known fact that this compensation is applied several times and so you end up with an “overcompensated” system where the drive to lessen the differences results in an excessive alteration of the public funds that are paid to the regional governments. These compensation funds, coupled with other central administration and Social Security expenses are worked into the fiscal balance between the regions and the State.

Unfortunately, we do not have any fiscal balance data per region. Former Spanish Finance Minister Cristóbal Montoro brought in a “light” version of it, but figures were only ever disclosed for four years and the most recent date back to 2014. When we compare the 2014 figures against the 2018 funding model, we notice that six regions are worse off, whereas nine are better off. Two regions, the Basque Country and Navarre, contribute to the State’s coffers more than they receive. However, they have a finance system of their own and collect all tax revenues [which is extremely beneficial to them]. The six regions whose fiscal balance is worse are the following, ranked from the worst off to the least worse off: Madrid, Catalonia, the Balearic Islands, La Rioja, Valencia and Murcia. These regions are rendered poorer by the actions of the State and, in the case of Madrid, Catalonia and the Balearic Islands, they end up being even poorer than the funding model leaves them.

What bearing do all these public actions have on the welfare of citizens? That is the question that truly matters to us. Luckily we have a very valuable data set that is worked out for every European region: the 2016 social progress index (SPI). It is a pity that it hasn’t been updated, but it least it provides a ballpark figure. The SPI shows that the three wealthiest Spanish region by GDP in 2019, according to INE figures, are also the top three on the index: Madrid, the Basque Country and Navarre, in that order. That seems normal. In contrast, the fourth wealthiest region, Catalonia, drops down to the twelfth slot on the SPI. That is not normal. The Balearic Islands, which ranked sixth on GDP per capita is the sixteenth region on the SPI. Catalonia and the Balearics are the two regions that present the greatest negative variation between GDP per capita and SPI.

Another year has gone by and the fiscal abuse on Catalonia and the Balearic Islands persists. What’s truly shocking is that a sizeable segment of their population won’t use the ballot to correct the situation. But that’s a different kettle of fish.