Tuesday, May 31, 2011

Catalonia's Fiscal Deficit



Catalonia’s Tax Imbalance: When Inequality Becomes Power: Catalonia’s tax imbalance grows every year due to Spanish economic policies

More than a million citizens living in poverty or on the edge of it in Catalonia.

A tax imbalance that has grown to 17 billion Euros in the last sixteen years, exceeding the 10% of the Catalan GDP.

An economic treatment of Catalonia by Spain that sanctions a disastrous and unjust redistribution of wealth favoring Spain.

These are just a few of the reasons why Catalan citizens are preoccupied about the future of their region (AKA autonomous community).

The Spanish Government’s redistribution of wealth among its regions has, over the course of the last two decades, has created an unsustainable situation that puts the economic viability and development of Catalonia and its citizens in serious risk.

Since the transition to democracy in the 1970s, the central Spanish Government in Madrid has been arbitrarily applying these economic policies and this has had especially dire consequences for Catalonia.

The Catalan GDP is the third highest in Spain, but after the central government collects this money and redistributes Catalonia’s wealth, the region is left in the eleventh place in terms of Euros per capita, not to mention with a serious tax imbalance. Conversely, Extremadura, a region by itself with one of the largest deficits in the country, is left with a larger economic surplus than any other autonomous community, and this economic injustice can be felt at an immediate, human level. 
                                                                      

In 2000, the Catalan poverty index was at 18.6%, or 1,181,700 people, and this situation has not improved. That being said, there are more poor citizens of Catalonia than there are citizens in all of Extremadura.
                                               

Moreover, in 2008, the Catalan fiscal deficit had already reached 10.2% of the region’s GDP, meaning that 10.2% of Catalan tax dollars did not go to helping them.

Catalonia’s Fiscal Deficit has surpassed 17,000,000,000 € in 16 years


Catalonia’s tax imbalance has grown at an alarming rate in the last two decades as a result of the Spanish Government’s destructive monetary policies—increasing by more than a billion Euros per year and exceeding 10% of the region’s GDP.

These statistics are even more troubling if you compare the Catalan tax imbalance with those in other competitive, industrialized nations. In the United States, for example, the limit on national debt is 2.5% of the GDP while in Australia and Canada it is even lower, a mere 2%.

Interestingly enough, the Federal Republic of Germany, which is widely recognized as the motor of the European economy, employs a similar system of monetary redistribution between its states, but differently from Spain’s model, it is guided by two basic principles that assure an equitable process: 1) no territory’s deficit may exceed 4% of its GDP, and 2) no territory that generates a surplus great enough to help other territories may fall below this limit once its wealth has been redistributed.


It should be restated that Catalonia’s deficit is well over 10% by now.

An Unfair and Inequitable Agreement with Madrid

Another glaring example of how the Spanish government plays favorites and discriminates against Catalan taxpayers is the Foral System that exists in Navarre and the Basque Country. The established economic agreement between these two autonomous communities and Madrid allows their regional governments to collect and administer their own tax revenues, obliged to contribute to the Spanish economy in just three areas: embassies, the military and the royal family. Needless to say, the Basque Country contributed a meager 1.3 billion Euros to the Spanish economy last year, while Catalan taxpayers were forced to concede 20 billion.

But this hypocrisy doesn't stop there. The Catalan Statute of Autonomy, approved by Catalan voters in a referendum and later legitimized by the Catalan parliament, establishes the possibility for Catalonia to regulate its own taxes in a similar manner to the status quo in Navarre and the Basque Country. Even though the Spanish Senate approved this document, the Spanish Supreme Court later declared it unconstitutional, while leaving the systems in Basque Country and Navarre untouched.

The Spanish Government’s mismanagement of the tax balance between regions is generating a grave economic tension that puts the solvency and future of the Catalan economy in serious risk.


Conclusion

The Spanish Government’s mismanagement of the fiscal balance between regions lets us understand the relationship between the investment of public funds in a given territory and the taxes generated there. If the taxpayers of a given autonomous community don’t produce much, their community will enjoy a fiscal surplus. If a region’s taxpayers generate great wealth, the community will suffer a tax imbalance.

The Spanish Government has used basic tenants of social democracy to justify the effects of the current economic system, by claiming that regional wealth must be redistributed based on the needs of a given territory, just as the rich pay higher taxes than the poor. In theory, this means that Madrid has the authority to strive for a more equitable economic relationship between regions, but unfortunately, this is not the case in Spain, where the central government’s mismanagement of regional tax revenues has generated poverty, deficits, lower quality of infrastructure, deterioration of competitiveness, and an inequitable economic relationship between the autonomous communities—especially ravaging Catalonia.


This is the result of political centrism and more specifically, placing the bulk of economic power in the hands of the Spanish Government, an institution that seems incapable of ensuring an equitable relationship between regions, as established by the model of the European Union.

                                                                                                                            

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