Gonzalo Bernardos, 3 August 2024
Economist
Image: Salvador Illa, during the executive committee in which the PSC has validated the agreements with Comuns and ERC Lorena Sopêna Europa Press
Image: Salvador Illa, during the executive commission in which the PSC validated the agreements with Comuns and ERC. Lorena Sopêna // Europa Press
On 29 July, PSC and ERC negotiators reached an agreement to invest Salvador Illa as president of the Generalitat. Among the issues agreed, the most relevant was the granting of an economic agreement to Catalonia. If approved by Congress, the former allocation would put the Catalan autonomy on the same fiscal footing as the Basque Country and Navarre and would entail the creation of a new special regime (a singular financing).
In the near future, the Catalan Tax Agency would collect all the taxes generated in the autonomy, pay a part to the General State Administration (AGE) for the services provided directly and indirectly to residents in Catalonia (the amount known as ‘cupo’) and pay a quota, known as solidarity, to help the development of communities with fewer resources.
Undoubtedly, the economic agreement would increase the income available to the Generalitat and, as a Catalan resident in the autonomous region, it could be beneficial to me. On the one hand, because of a reduction in taxes paid. On the other hand, because of the increase in public spending on health, education, infrastructures and so on.
Despite this, I am against the concession of the concert to Catalonia, for both economic and political reasons. The former are as follows:
a) fiscal balance calculations have limited credibility. Fiscal balances are a magnificent academic exercise, but they have limited credibility in quantifying what an autonomous community contributes to the National Government and what it receives from it. Firstly, because there are two types of balances (observed and neutralised) and multiple methods for calculating them. Secondly, because of the numerous assumptions that must be made in order to reach certain conclusions. On the one hand, there is not enough disaggregated information. On the other hand, the expenditure made by the National Government benefits the community where it is made and also the rest of the country. This is the case with the investments made in the port of Barcelona, in the AVE high-speed railway through Castilla y León and in the military installations in Zaragoza. Thirdly, because of the large differences observed in the results provided by the different balances and methods. Thus, for example, in 2009, Catalonia’s fiscal balance with the National Government ranged from a surplus of 4.015 billion to a deficit of 16.410 billion. The first figure was ignored by the Generalitat and the second publicised time and again. From my point of view, neither of them was in line with reality.
b) Solidarity between the autonomous regions must continue. In our country, hardly anyone questions the fact that people with higher incomes have a negative fiscal balance. In other words, the amount paid in taxes exceeds the amount obtained in public benefits. Catalan pro-independence parties are also in favour of solidarity, but only within Catalonia. For this reason, they are quite happy for the citizens of the Barcelona metropolitan area to finance those of the rest of the autonomous region. However, it is surprising that a progressive party like the PSOE supports an economic agreement in Catalonia, despite the fact that such a possibility does not appear in the Constitution. Especially since it is in favour of redistributing income among citizens through taxation and public spending. A concession that will make a prosperous territory richer and impoverish autonomous regions with a lower GDP per capita.
c) Solidarity cannot be limited by ordinality. In the agreement between PSC and ERC, both formations limit the solidarity of the Catalans with the rest of Spain to ordinality. In the ranking of the autonomous regions, according to what they contribute to and receive from the National Government, the agreement establishes that Catalonia must never occupy a lower position in the second section than in the first. If this were to happen, the contribution made to the rest of the territories would be scarce and substantially lower than that calculated by FEDEA (2,168 million in 2021).The above restriction extrapolated to the area of personal income tax would mean that any Spaniard with an annual income of 300,000 euros should receive more public benefits than those receiving the minimum wage (15,876 euros), despite the fact that the latter need them much more than the former. This is an option that no party, including neoliberal parties, would publicly dare to propose.
d) the fiscal balances do not take into account the National Government’s contribution to the pension system. The income from Social Security and passive class contributions is insufficient to cover the payments for contributory pensions and the expenses derived from their management. According to Miguel Ángel García, professor at the Rey Juan Carlos University, in 2023 the gap between the two amounted to 69,919 million. Last year, if Catalonia’s contribution to Spanish GDP was 19%, residents of the autonomous region obtained additional funding from the National Government through the pension system to the value of 13,285 million. This is more than six times the amount contributed by Catalonia to the common financing system in 2021 (2.168 billion).
The political reasons are the following:
a) no autonomous community should have a special financing regime. From my perspective, all communities should be part of the common regime and none of them should have a special one. That is why I am against the Catalan economic agreement, but also against the Basque and Navarrese ones. However, the latter two are provided for in the Constitution, but not the former. Undoubtedly, an essential difference. The special regime of the Basque Country and Navarre allows them to receive funding from the rest of Spain, both autonomous regions being richer than the country as a whole. As a result, social spending per inhabitant in these regions is higher than in any other. This situation stems from two factors: the lack of solidarity with the rest of the nation and the political negotiation of the quota. Time and again, the Spanish government of the day, in order to please the PNV and obtain its votes in Congress, accepts that the National Government receives a lower amount than it would be entitled to for the services provided to residents in the Basque Country and Navarre. Undoubtedly, a comparative disadvantage for Catalonia, a community that in the summer of 1980 preferred to remain in the common financing regime rather than having a special one, and also for the rest of Spain.
b) the economic agreement would facilitate Catalonia’s independence. On this occasion, the ERC leaders are right. They are by no means bluffing. The collection and management of tax revenues originating in the Catalan territory is a step forward on the road to independence. Firstly, because the day after the declaration they will be able to continue financing basic public services. Second, because it gives them more capital to promote their supposed advantages, both in Catalonia and in the rest of the world. With the economic agreement, the Catalan Tax Agency will have characteristics similar to those of any other in a developed country.
c) it constitutes a comparative disadvantage compared to other rich communities. According to FEDEA, granting an economic agreement to Catalonia would prevent it from being denied to the other two autonomous regions (Madrid and the Balearic Islands) that contribute more than they receive from the National Government. If it were granted, there would be little or no redistribution of income between territories and the country would embark on an uncertain path, the different end of which would probably be the creation of a confederation of nations through the back door. A possibility not at all envisaged in the Constitution.
In short, it comes as a surprise that a state-wide party such as the PSOE agrees to grant Catalonia an economic agreement. However, it is no longer a surprise that its leaders denied such a possibility only a few days earlier. Undoubtedly, it is a contradiction that this party is in favour of redistributing income among individuals, but not among autonomous regions, when the latter are made up of citizens.
Although the agreement would benefit me, as I am Catalan and a resident of the community, I am against it. Firstly, because I show solidarity with those who have the least. Secondly, because my solidarity with those in Lleida is identical to the solidarity I have with those in Badajoz. Not at all, as is the case with pro-independence supporters, does it have the Catalan territory as its limit. Thirdly, because I am in favour of social justice and I want all citizens in Spain to have the necessary resources to obtain a decent standard of living. Fourth, because not all autonomous regions have the same cards. Those with the most private investment (Madrid and Catalonia) always have one or more jokers in their hand. On the other hand, those that have less access to it are unlikely to have two or more cards whose numbers are correlative or identical.
Recent history clearly shows the insatiability of pro-independence politicians. Whatever the Spanish parties give them, they will never be satisfied, unless they are offered independence. The concession of the economic agreement would be a big step forward on the road to their goal and would probably lead to the emergence of a new ‘procés’. If this happens, I hope and pray that it will not be as damaging to Catalonia as the previous one. We have not yet recovered from it, either socially or economically.
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