Saturday, January 28, 2012

The Catalan fiscal deficit: Catch-22 or sovereignty

About the author of this article for Help Catalonia
Special Colaborators
MHP Josep Bargalló Valls is the author of this article

First Minister and Minister of the Presidency of Catalonia 2004-2006
Minister of Education of Catalonia 2003-2004
Councillor in Torredembarra Town Council (1995-2003)

President of the Ramon Llull Institute (2006-2010)

From 2010 he is Professor of the University Rovira i Virgili

In 2008, the fiscal deficit of Catalonia—the difference between the taxes collected and the public budget it receives—was a 10.2% of its GDP, i.e. around 22,000 million euros; that is to say: 3,000 euros per person and year. Moreover, at the end of 2011 the Spanish government owed 759 million euros for infrastructures which, according to current regulations, should have been directly invested or otherwise transferred to the Catalan government.

The German constitutional framework establishes a compulsory upper limit for the fiscal deficit of its länder at 4% of their GDP. Similarly, Canada and Australia establish such an upper limit at 2%, the reason being that a higher fiscal deficit would endanger the competitiveness and the social resources of the corresponding regions. That is exactly what is currently happening in Catalonia, a situation which gets even worse when the Spanish government fails to meet the compromises it has reached with Catalonia. As a result of this situation, the terminology in Catalonia is shifting from “fiscal deficit” to “fiscal theft”.

Given the dramatic state of affairs in Spain, with its national public debt and its deep economic crisis, the new government of Mariano Rajoy and Partido Popular is threatening Catalonia with a worsening of such economic policies which may strangle Catalonia's government, economy and people. When it comes to tax collecting, Catalonia is the third autonomous community in Spain. However, if we order them according the amount of money transferred back from the central government, it ranks tenth, in spite of being the autonomous community that has more competencies to manage, from public health to police and prisons. Although the national media established in Madrid keep on blaming Catalonia's government for the whole Spanish economical problem—a message which a certain kind of European press likes to repeat without any critical examination—the truth is that prestigious and rigorous media just don't buy it. Some months ago the New York Times, in the article “Deficits in Regions Compound Fears About Spain by Raphael Minder, reported on Catalonia's fiscal deficit and suggested that the financial problems experienced by the Catalan government “lies not with past extravagance or mismanagement but with a national financing system that has left Catalonia contributing the equivalent of 10 percent of its GDP to support poorer regions through taxes collected by the central government in Madrid” which is well over any limitation to interregional solidarity in efficient systems like those in Germany, Canada or Australia, which establish that subsidized regions can never get above the average after the redistribution (which is the case in Spain), and subsidizing regions can never lose positions in the GDP ranking, as it has been happening with Catalonia for years.

A recent report by the London-based investments firms King & Shaxon adds that with Madrid's denial to pay the additional 759 million euros debt to the Catalan government for infrastructure funding, Catalonia's fiscal deficit will raise for no acceptable reason. This will create an internal conflict that will only damage the perception of Spain in the international markets. King & Shaxon describes Catalonia's situation as a “paradox”: a productive economy which should not have much trouble handling the global crisis is instead facing the possibility of a “catch-22”, i.e. an scenario where all options turn out to be negative.

Artur Mas, Catalan Prime Minister
Therefore, Catalonia (and its people) is in a situation of financial and social tension which does not leave room for many courses of action. The fiscal agreement currently claimed by the Catalan government—presented at London by President Mas a few days ago in a meeting with European liberal leaders—is the latest attempt to solve the deficit problem. Unfortunately, all previous attempts have suffered the same fate: whenever a new agreement with the Spanish government has been reached after great effort, it has generated higher levels of tensions because the tendency has never been inverted. At best, the fiscal deficit sometimes has lost momentum, a slight improvement which tends to fade away after some time.

For that reason, there is an ever growing number of Catalan citizens (and relevant associations, artists, intellectuals, and prestigious businessmen) which advocate for the separation solution. It is seen as a means to preserve Catalan identity and language but, mainly and most importantly, as the only way to guarantee the future and the viability of a society with a productive economy which otherwise will enter a deep depression that will severely decrease its social achievements and its resources, for both its native population and the many who have emigrated there. Separation from Spain is seen as the necessary step for being able to invest that huge amount of fiscal deficit (over 22,000 million euros) which is otherwise lost every year. On the other hand, Europe needs a prosperous Catalonia: an economical motor in the southern part of the continent, a bridge with emerging countries at the opposite shore of the Mediterranean and beyond, a strong economy able to cope with tensions in its area which will be ready for European interregional solidarity in the way it will be deemed best. In other words: a Europe which refuses to surrender needs a sovereign Catalonia.
Josep Bargalló
@josepbargallo
Other articles by this author: 
Heirs of a Defeat
A Europe of Everyone, also of the Catalans
Is Spain afraid of Occitan?
Read other Special Colaborators articles here

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