Budgets: the five categories of the fiscal deficit

Amid the debate over the budget proposal that the PSC ultimately withdrew, it's worth highlighting five key economic issues where Catalonia has a lot at stake in the coming years. Beyond the current situation, the essential thing is to ensure a solid foundation for facing the numerous challenges ahead.

It is undeniable that Catalonia needs a budget after two extensions: the country can function, but it can hardly move forward. This negotiation comes at a particularly delicate moment, marked by the ambivalence between notable progress on commitments between ERC and the PSC/PSOE and breaches on others, such as the personal income tax, in an increasingly demanding and turbulent international context.

It's important to remember that Catalonia's fiscal deficit, which has persisted for four decades, isn't the result of a single factor, but rather multiple causes. These are all factors that need to be identified and addressed, one by one, if we truly want to correct it. What are these factors?

1. Regional financing system. This is what funds the shared responsibilities of the autonomous communities. The reform is twelve years overdue, and their governments have assumed more powers while costs have continued to rise. The proposed model incorporates significant changes: an additional €21 billion transferred from the state budget (€4.7 billion for Catalonia, a 22% increase), a simplification of the funding labyrinth, a reduction in disparities between communities, and the elimination of advance payments, which reduces financial oversight. It also includes specific elements for the Mediterranean region, such as the climate fund, and for Catalonia, such as the possibility of collecting VAT from SMEs based on their tax domicile. Although insufficient—and probably always will be—it is a clear step forward. Now, it must be ensured that it is enacted into law and passes through Congress.

2. Funding of non-homogeneous competencies. Often overlooked, but crucial. For years, Catalonia has assumed responsibilities such as managing the Mossos d'Esquadra (Catalan police force) without a corresponding increase in state funding, which has strained other budget items. Progress has been made in recent years, but the work needs to be completed: legally guaranteeing the funding of the Mossos, the prison system, the €150 million annual research fund, and language policies, and, above all, establishing automatic funding mechanisms linked to VAT. This would increase Catalonia's share of VAT revenue from the 56.5% projected under the new model to around 80%. It's an advanced agreement, but still pending finalization.

3. FLA debt. Far from being a minor issue, this reduction is essential. Canceling 20% ​​of the debt – €17.104 billion – and saving nearly €2 billion in interest represents a substantial improvement in the Generalitat's financial health. The agreement is technically finalized but pending final approval in Congress.

4. State investment deficit. It is one of the main sources of fiscal hemorrhage and requires our full attention. The accumulated figures for budgeted but unexecuted investments in Catalonia are of a magnitude that defies description—simply scandalous. It is essential to guarantee the creation of an investment consortium with the real capacity to plan, execute, and, above all, manage the resources allocated to state-owned infrastructure. In parallel, it is necessary to complete the transfer of the commuter rail network with a maintenance and investment plan commensurate with the challenge, and to finalize the Mediterranean Corridor.

5. Delegation of Personal Income Tax. This is the most strategic issue. Taking over the collection and management of this tax is key to correcting the underfunding and advancing fiscal sovereignty. It is a technically complex and politically demanding process, but neither exceptional nor revolutionary: similar models operate normally in federal countries like Germany, Switzerland, and Canada. This is an explicit commitment of the PSC, endorsed by the PSOE's federal committee in July 2024.

Faced with this scenario, there are two possible attitudes: fatalism—thinking that nothing will be enough and that we will always end up being entangled—or pragmatic action. The latter involves working on every detail, activating all political levers, and consolidating progress, even if partial, but sustained.

We have a lot at stake, as a country, in the organization and completion of these tax reforms, which are currently in advanced stages of negotiation, but which must be finalized successfully. It is also necessary to ensure that the personal income tax reform is based on rigorous technical work and real guarantees of compliance, including regulatory ones.

Only by making sustained progress in all these areas can we begin to effectively correct a fiscal deficit that has been limiting the country's well-being and economic potential for far too long.