Financing agreement and fiscal deficit: a response

I am surprised that Miquel Puig, with whom I have shared analyses and diagnoses so many times, opposes arguments which he himself has strongly defended.

I stand by my statement In the assertion that, from a Spanish perspective, the regional financing agreement announced by Oriol Junqueras and Minister María Jesús Montero, later presented to the Fiscal and Financial Policy Council (CPFF), improves upon the previous model. It reduces the gap between the best-funded and worst-funded autonomous communities under the common regime. It corrects the most painful cases of underfunding in those communities, such as Valencia and Murcia, which, being poorer than average (in fiscal capacity), emerge from the current redistribution process even poorer. It corrects the cases of Andalusia and Castilla-La Mancha, which, receiving less than average, improve the resources available to them and move closer to the average with the new model.

I believe that if the minister had presented the model directly to the CPFF without the prior public information provided by the president of ERC, she could have defended its merits to all the critics. To approve the new model, the Minister of Finance will have to negotiate bilaterally with all the regions considered to be in a precarious situation, and the outcome will almost certainly differ from what was announced. Catalonia's fiscal deficit will be reduced even less than it already is under the announced model.

The calculations made by Miquel Puig in his article last Sunday assume that the fiscal deficit is currently 8%, when it has been trending upwards for some time now—between 9% and 10%—as the citizens of Catalonia clearly perceive and as the estimates of the Catalan government have been identifying. And, of course, given how fiscal balances are calculated, any new public spending that must be allocated regionally can only be assigned to each region based on a criterion such as its share of total GDP. This applies to regional financing, pensions, central government spending, and all state spending. In my skeptical view of the effects of the new funding model for Catalonia, I added other elements. The first, which wasn't immediately obvious, is that we're jumping from comparing 2023 spending data to projected resources allocated for 2027; that is, a four-year leap. If we discount the spending that has already increased, and that is expected to increase further, the gain is much smaller than announced: it almost cancels it out!

I must also reiterate another, more profound criticism I made: the only adjustment required by a funding model that accounts for money used to pay salaries is the adjustment for purchasing power parity. In every crisis affecting public services—trains, teachers, healthcare workers, police officers, judges—we always return to the same point: life is more expensive in Catalonia than in most of Spain, and public servants, whether from the central government or state-owned companies, react by fleeing Catalonia. Given that 80% or more of regional funding goes toward salaries and income support payments, a perfect equality of per capita regional funding makes it clear that the same amount of money received in Catalonia does not buy the same things as in other Spanish regions. The only exceptions would be Madrid, the Basque Country, Navarre, and the Balearic Islands, according to the latest study published by Àlex Costa and others co-authors –very interesting, like previous ones–, for estimates corresponding to the year 2021. All this reminds us that the INE (National Institute of Statistics) always has all the information on purchasing power parities at all territorial scales (this data is essential for calculating the cost of living indices) and that the model of making this information public should be made public by the financing sector.

Investment remains to be mentioned. The Generalitat (Government of Catalonia) has made enormous investment deployments in the past. To give some examples, it has rebuilt and expanded the road network (we recall the C-16, C-17, C-21, C-25, C-31, C-35, C-37, C-59, etc.); Line 9, still under construction, has already added many kilometers to the Barcelona metro network and its surroundings, and the Ferrocarrils de la Generalitat de Catalunya (Catalan Government Railways) have expanded their network in the Vallès Occidental region. But the Catalan government can't do more because the central government won't let it. Central governments end up allocating significant sums to investment budgets in Catalonia that they then fail to spend. This isn't just because Catalonia is a more complex territory than Madrid—which it undoubtedly is—but because the simplest and least contentious expenditures are not carried out. From this perspective, it's disheartening to say that the current government of President Sánchez hasn't done anything different from the previous one, under President Rajoy. Minister Puente's acknowledgment that the commuter rail network suffers from a brutal lack of investment is a commendable gesture, but it offers no solutions. And, ultimately, it backfires on his own government.