Misc 09/03/2016

The key to the coffers

The Spanish State collects Catalonia’s tax money, takes it to Madrid and sends us an advance as part of the existing regional funding scheme

Albert Carreras
3 min

We usually say that Madrid holds the key to the coffers because it is the Spanish State that collects taxes, whereas over eighty per cent of Catalonia’s funding comes from revenues transferred by Madrid to Barcelona. The Spanish State collects Catalonia’s tax money, takes it to Madrid and sends us an advance as part of the existing regional funding scheme. Unlike with other Spanish regions, the figure levied in Catalonia is always higher than the amount transferred to the Catalan government, including local government, the State’s administration in Catalonia, pensions and benefits. This is what we refer to as “fiscal deficit”.

Holding the key to the coffers affords you power. Likewise, not holding it means being powerless. The Basque Country and Navarre have their own taxation regime and they have the key to their coffers. Even local councils, with a number of important taxes (housing and motor vehicle taxes) have much greater autonomy than the Catalan government. This power means being able to administer the provision of cash flow at one’s discretion: deciding what will be paid out and when. At present, the Catalan government suffers a recurring deficit because while the economic crisis has caused tax revenue to plummet, Madrid has denied it the chance to borrow independently and it has become Catalonia’s sole banker. This is holding the key to the coffers, times two. In the past, Madrid would routinely allow the Generalitat to borrow. Later, towards the end of the PSOE’s most recent term in office (2009-2011), granting permission to borrow cash became a tool to control the regional finances. Afterwards, once the PP took over, they set a cap on the interest rate at which debt had to be paid back, so that banks would simply find it impossible to lend any money to the regions. Eventually, the Spanish State decided that it would become the sole lender of any further debt. The latest step was to place specific demands only on Catalonia’s government. As you can imagine, each of these steps included a number of requirements which meant that you could effectively claim the Generalitat's finances had been “taken over”.

Now Spanish Finance Minister Cristóbal Montoro has come up with yet another show of arbitrariness, a blatant display of power. When in July 2013 the Spanish Treasury underestimated the amount it would advance to Catalonia (and the other Spanish regions with an ordinary funding system) in 2014, it did so in order to keep some budgetary leeway. Tax revenue in 2014 far exceeded Madrid’s expectations and the Generalitat was adamant that the advance should be topped up accordingly. The Spanish Treasury systematically refused to. Eventually, in July 2015, the Treasury announced that the regional governments would see no reason to complain about their 2016 income because, thanks to the 2014 revenue, it would be very good. What a nerve! In Catalonia’s case, it amounts to €1.3bn, a sum which the Generalitat lends Madrid, interest-free, and is unable to administer. Every year such payouts (which are usually positive because of the aforementioned leeway) —which in principle Madrid is expected to pay only in July— used to be advanced in winter and spring to alleviate the region’s dire cash flow problems.

Well, it turns out that Minister Montoro —who is a caretaker minister and should keep a low profile and help to solve problems instead of causing them— is now being all cocky and accuses the Catalan government of demanding what it is not owed. This is arbitrariness in its purest form. It is a reminder that Madrid holds the key and will do whatever it fancies with it. Who will suffer? Large and small suppliers. Subsidised institutions. Anyone who is due a benefit or a grant. Those who receive aid and transfers. In other words: publicly funded hospitals, pharmacies, third sector entities, homes for the elderly, all sorts of people on benefit, such as dependents, and so forth. Why is it that those who claim to support the Catalan public and their interests do not complain about this inadmissible arbitrariness by the Spanish Treasury against Catalans? Why do the PP, Ciudadanos, business associations, professional boards and interest groups keep quiet? They certainly wouldn’t in the Basque Country, Andalusia or Madrid. Why do they, in Catalonia?