The secret talks between the PSOE and Junts regarding fiscal balances

MadridTogether for Change (Junts) broke with the PSOE on October 27th due to the latter's failure to uphold the investiture agreements. However, they left the door open for a possible reconciliation if progress is made on the Brussels agreement. One of these issues is the publication of fiscal balances, a matter that has been dragging on for months. According to several sources consulted by ARA, negotiations are being conducted, on the one hand, through a group of experts advising Junts and, on the PSOE side, through the Institute for Fiscal Studies, headed by Alain Cuenca and under the Ministry of Finance. This open communication channel is being used to discuss the methodology for publishing the data, while political dialogue is limited to Miriam Nogueras and the Minister, María Jesús Montero. Meetings in Switzerland remain stalled, according to Junts sources. In fact, their relationship could become strained again next week in Congress, as there is an extraordinary session on Tuesday to ratify a decree with several social measures, including the revaluation of pensions, and Junts has by no means guaranteed its support. Indeed, the PSOE has repeated a practice that infuriates Junts, as it mixes decisions of different kinds in a single decree that is voted on together.

But let's recap. Where does the negotiation of the fiscal balances stand? To begin with, it's an issue that has been dragging on since the start of the legislature. The ministry took a first step to comply with the agreement. when he published the data so that the Catalan government can calculate them, but Junts demands that an official state body calculate and publish the balances. Not only for Catalonia but for all the autonomous communities, to also see the situation in Madrid or other communities that benefit most from the financing model.

The last time this data was officially published by the Spanish government was in 2017 during Cristóbal Montoro's tenure – they were called territorialized accounts–where they indicated that Catalonia had a fiscal deficit with the State up to 10 billion eurosHowever, when Pedro Sánchez came to power, Minister María Jesús Montero stopped calculating them. as explained by AHORA.

The Generalitat (the Catalan government) has continued to publish this data, as it has been legally obligated to calculate it since 2012. The current team of Minister Alícia Romero has committed to doing so when presenting the Generalitat's budget, sources from the Department of Economy confirmed to this newspaper. The last Generalitat minister to publish the data was Natàlia Mas, who tallied... up to 22,000 euros the fiscal deficit.

The discussion

Unlike other issues such as the transfer of immigration powers or the official status of Catalan in the European Union, sources within the Junts per Catalunya (Junts) party emphasize that the publication of fiscal balances does "depend" exclusively on the Spanish government. Sources at the Ministry of Finance explain that they are "working on it," noting that unlike other data such as public debt, there are no universal rules for calculating fiscal balances. Several sources familiar with the negotiations explain that the main sticking point between Junts and the PSOE (Spanish Socialist Workers' Party) is the method for calculating the balances. There is a debate about the methodology to be followed, which translates into the traditional discussion among economists and academics in this field: what is the best way to capture the drain of resources between the central government and the autonomous communities?

Technically, two different approaches can be followed: on the one hand, the monetary flow method, which consists of accounting for the tax revenue collected in a territory and then measuring what the State spends in that same place; and, on the other hand, there is the burden-benefit method, in which not only the State's spending in a territory is counted, but the benchmark is the potential beneficiaries of central government services. This means that, with this calculation, not only what the State spends in Catalonia is measured, but also state services that, despite not being territorially allocated, Catalans are also potentially benefiting from: two traditional examples are defense spending and the Prado Museum. Depending on the method used, the fiscal deficit is different: it has traditionally been higher when measured using the monetary flow method (which Catalan nationalism has always favored) than the burden-benefit method (which is the method preferred by the Spanish government).

Since fiscal balances began to be calculated in Catalonia, the Generalitat has always used both methods to avoid controversy. Junts hopes the Ministry of Finance will now follow suit.

The connection with the financing model

Junts criticized Esquerra for reaching an agreement on the financing model that keeps Catalonia within the common system for all autonomous communities, and especially for signing the agreement before knowing the data on the fiscal balances. "Esquerra gave the presidency to the Socialists in exchange for an economic agreement, but Salvador Illa is president and Catalonia will remain without one. A swindle," denounced Congressman Josep Maria Cruset in an Instagram video, even asserting that "the plundering will increase" and that this is why the agreement was reached "before publication." In fact, one of the things Junts wants to bring to the table in the financing negotiations is the data it obtains from the Treasury: they want to demonstrate that the extra 4.7 billion euros the Generalitat would gain with the new system would be less than the fiscal deficit. Thus, this is also a way to reinforce their position against the latest ERC-PSOE agreement.