The Valencian Generalitat is drowning: the cuts are back

ValenciaThe Valencian Government's coffers are empty. The causes of this crunch include structural issues, such as underfunding in the regional government, but also temporary ones, such as the extra spending on the DANA (National Action Plan for the Development of the Autonomous Community of Valencia), the tax cuts by the PP and Vox, and the absence of the State's extraordinary regional liquidity fund (FLA). A combination that has meant that, twelve years after the economic crisis that began in 2008 and its austerity policies, cuts and liquidity problems have returned to the Valencian Community.

The severe treasury pressures in the Valencian Government coincide with the negotiations between the Generalitat, Esquerra (Republican Left), and the Spanish government over the new financing system. These talks, it should be remembered, will only bear fruit in the Congress of Deputies if Valencia's demands are met, as the votes of Compromís (Party of the Left) will be necessary.

The Valencian coalition has already announced that it will demand a change in financing to prevent the Valencian Community from being the ninth largest contributor to the common fund in 2022, but the fifteenth largest in contributions, with 3,054 euros per inhabitant, 1,161 euros less. This financial weakness makes it more difficult to understand why the Generalitat has opposed the partial forgiveness of the debt generated by the FLA. In the Valencian case, the Executive's proposal is to forgive 11.21 billion euros. Although it may be surprising, at this point, the main reason given by the PP is that the reduction is the result of an agreement between the PSOE and Equerra.

Extraordinary loan

While waiting for an extraordinary FLA to save the accounts or a new, more equitable financial model, the Council led by Carlos Mazón (PP) has asked the State to authorize it to take out a loan of 2.49 billion euros, 1.816 billion to be collected now and 674 million in December. The funds should help it address the backlog it already has with pharmacies, nursing homes, and other suppliers. "It is the Spanish government that should provide a response to this situation," complained the Vice President and spokesperson for the Consell, Susana Camarero.

According to the Minister of Finance and Economy, Ruth Merino, the Generalitat "cannot conceive" that the Council of Ministers on July 15th will not approve the measure. This optimism is well-founded because the Spanish government has emphasized that regional loans are routine operations that the State regularly authorizes. The Ministry of Finance has been much more cryptic when it came to clarifying whether the non-approval of the extraordinary FLA—which is also a loan—is a delay or a change of criteria, given that it is the first time in twelve years that it has not been approved at this point in the year.

Faced with Madrid's silence, those responsible for countering the Generalitat's criticism have been the Spanish government's delegate in the Valencian Community, Pilar Bernabé, and the secretary general of the PSPV (Spanish Socialist Workers' Party) and Minister of Science, Innovation, and Universities, Diana Morant. Both have had to struggle with a Council that has turned underfunding into political ammunition. The criticism has been so constant that business leaders and unions have called on the PP not to use this issue for partisanship.

As usual, Bernabé was the most forceful, lamenting that the Popular Party (PP) practices "permanent victimhood to avoid assuming the greatest responsibility they have, which is to govern and make their accounts balance." The Socialist leader asserted that the Consell's numbers don't add up because it has made "a fiscal gift of 500 million euros." She is referring to the elimination of inheritance and gift tax for many citizens, reductions in personal income tax, and reductions in the property transfer tax. According to the Independent Authority for Fiscal Responsibility, these measures reduced revenue collection by 495 million in 2024.

The long list of reproaches between executives also includes the delay in the transfer of 900 million to the Generalitat for advance payments, unpaid bills that "block such important measures as the deficit path and the Fiscal and Financial Policy Council."

Save 1.132 billion

Whether it's the Valencian government's responsibility for its management and fiscal policy or the State's responsibility for perpetuating a system that underfunds the Generalitat, what is certain is that cuts have returned to the Valencian Community. According to the newspaper Levant, the Valencian government has agreed with the Ministry of Finance to spend 1.132 billion less than the 32.291 billion budgeted in the regional budgets, despite their approval a month and a half ago. The objective of the reduction is to access state liquidity mechanisms such as the extraordinary FLA (Spanish acronym for "flat-rate spending").

While waiting for the main items to be cut to be specified, the Consell has already announced that it intends to save 192 million with "the digitalization of justice, the promotion of generic medicines, the execution of agreements for the purchase of pharmaceuticals, and a common system for monitoring absenteeism." According to the executive, the measures will not affect "public services" and, if they do, "it will be for reasons of efficiency" to reduce "superfluous spending" and "prioritize essential items for the operation of basic services."

First in debt

The savings figures proposed by the Generalitat seem small compared to the accumulated deficit of €2.495 billion in 2024, 1.68% of Valencia's gross domestic product (GDP). This deficit has been an enormous debt, once again the largest percentage-wise in the state, and as of March 31, it represented €60.368 billion, 40.3% of GDP. That is, €11,934 per inhabitant.