Manel Pérez, Barcelona, 1 September 2024
Deputy to the Director
Image: Pedro Sánchez and María Jesús Montero in the Congress of Deputies.
Dani Duch
Guide to the debate and some falsehoods about the funding pact for Catalonia
‘The Catalans don’t keep their pensions because they are going badly, they have a deficit’, a lapidary phrase launched like a missile against the agreement between the PSC and ERC by a well-known economist, hyperactive on social networks and a regular on talk shows and television interviews. The problem is that it does not correspond to reality. Like many others launched these days.
The agreement is being demonised with imaginative, if not invented, readings and a clear disregard for the truth. Not all of them as fanciful as the one on pensions, but close enough. It is credited with doing away with territorial solidarity; assuming the objectives and concepts of independence; turning Spain into a confederation and dismantling the state. It is no secret that this line is at the service of political aspirations that resort to almost ancestral prejudices to ensure electoral loyalty. In reality, the final outcome of the agreement is on hold until a definitive pact is reached between the Generalitat of Salvador Illa and the central government of Pedro Sánchez, in the hands of the teams of Alicia Romero, Catalan Minister of Economy, and María Jesus Montero, Vice-President and Minister of Finance.
Concert
A risky comparison
The agreement establishes that the Basque Country ‘can maintain, establish and regulate its own tax system’.
It defines the pact regulating the financial relations between the State and the Basque Country, which recognises that ‘the competent institutions of the historical territories of the Basque Country may maintain, establish and regulate their own tax system’. Subsequently, the latter hand over to the State the amount corresponding to their expenditure not assumed by the Basque Government, i.e. the quota. This is specified as a percentage of the volume of the Basque Country’s economy and is not the result of a precise calculation of State expenditure, nor does it mention inter-territorial solidarity.
In fact, the agreement was an old demand of the Catalan economic world, dating back to 1899, which unleashed the first revolt of the Catalan bourgeoisie against the Spanish Treasury, the ‘tancament de caixes’ (the ‘tanking of the coffers’). Virulent, but not pro-independence. Afterwards, since the Civil War, this claim fell into oblivion, until it gained new vigour with the ‘procés’, from 2012, when Artur Mas, then president of the Generalitat, revived it, renaming it the fiscal pact, which Mariano Rajoy discarded.
But, beyond history, what does the PSC-ERC pact say? There is no reference to these ideas. Certainly, not to be forgotten, it is a clear political choice, as one of its two signatories, the socialist party, does not share them. Despite the ambiguity of the document. It recognises that the ultimate aim is that ‘it is the Generalitat that manages, collects, settles and inspects all taxes borne in Catalonia’. But it also establishes that ‘the Catalan contribution to state expenditure will be established through a percentage of participation in taxes’. It does not make it clear who will be in charge of collecting this part, nor whether this contribution will be agreed in advance; nor whether the money will go directly to the State’s account without even being paid into the Generalitat’s account. The socialists are in favour of a reading closer to this interpretation; the republicans, on the contrary. This will be one of the central points of future negotiations.
Fiscal deficit
Not mentioned in the pact
The Basque quota is defined as a ‘contribution to all the burdens of the state that the Basque Country does not assume’.
It does not appear in the agreement either, despite being a criterion that has always been used by the pro-independence movement. It is no secret that this line is at the service of political aspirations that resort to almost ancestral prejudices to ensure electoral loyalty.
In reality, the final outcome of the agreement is on hold until a definitive pact is reached between the Generalitat of Salvador Illa and the central government of Pedro Sánchez, in the hands of the teams of Alicia Romero, Minister of Economy, and María Jesus Montero, Vice-President and Minister of Finance.
In the case of a federal state, the central state, the federation, has supreme power and has some exclusive powers over the territories to which others have been decentralised.
Until now, the main criticism of the Basque Agreement was not its supposed confederal nature, but its alleged lack of solidarity, since the contribution to the State’s accounts would not, in practice, be linked to the provision of resources for the poorer or less developed communities.
Ordinality is compensated by the objective that all communities should provide the same services.
Returning again to the PSC-ERC pact, it does not include any renunciation of State powers, even when references are made to those that would be assumed, as a final objective, by the Agència Tributària de Catalunya (Catalan Tax Agency). In fact, even the Statute scraped by the Constitutional Court recognises that the Generalitat could receive ‘the delegation of the functions of management, collection, settlement and inspection’ – identical wording as in the pact -, albeit through a consortium between the AEAT and the TA. On this point, the signed document also refers to two articles of the Statute of Autonomy that regulate collaboration between the two tax agencies.
Bilaterality and multilateralism
The State and the Generalitat, face to face
It refers to what has been the working method, until now, of all the agreements on autonomous community financing: multilateral, simultaneous negotiation between the State and all the communities, in which the agreements are conditional on their homogeneous application to all participants. A system that makes it extremely difficult for a community to propose and satisfy its own specific needs or unique ambitions.
Moreover, the most active community in this field, Catalonia, has been systematically and fiercely criticised by the rest when it has proposed changes to the model over the decades. In the end, they have all signed up to reap the benefits, but with a watchful eye on what the Catalans have achieved. In any case, the reluctance of the other communities to accept a negotiating framework in which they are not present is more than understandable.
The Catalan pension deficit is already included in all the sums on state spending in the region.
The agreement accepts bilateralism, the exclusive negotiation between the State and the Generalitat. It is also the starting point for a unique model, adapted to specific needs or services, and proposes that in order to change things, the Generalitat does not have to submit to the complex process of multilateral negotiation.
Regulatory capacity
The State’s renunciation
One of the elements put on the table to question the agreement and highlight its confederal character is that it would also hand over to the Generalitat the regulatory capacity, the possibility of establishing the rules, on all taxes. Critics argue that this would widen fiscal inequality.
The pact’s greater regulatory powers for the Generalitat does not include any waiver by the state.
However, the document does not mention any renunciation of the state’s ownership of its taxes, nor does it propose granting the Generalitat a regulatory carte blanche. It includes generic references, in no case of absolute objectives, to the fact that ‘a substantial and progressive increase in the regulatory capacity in all taxes generated in Catalonia’ or ‘a substantial increase’ in this competence is necessary. But always within the framework of ‘coordination with the State and the European Union’. In other words, the role of the former is not envisaged to decline or disappear, and is limited within the framework of what the State applies.
Pensions
The big lie
Catalonia forgets about pensions. Some analysts and so-called experts have been quick to accuse the agreement of not taking into account the calculation of pension expenditure when talking about the new financing model. An absolute falsehood. Catalonia maintains a deficit between what it contributes to Social Security, via social security contributions, and what it receives, above all in the form of retirement pensions. In 2021, the last year published by the Ministry of Finance, it was 4.37 billion. The Catalan pension deficit is already included in all the sums on state spending in the region.
The agreement accepts bilateralism, the exclusive negotiation between the State and the Generalitat.
It is also the starting point for a unique model, adapted to specific needs or services, and proposes that in order to change things, the Generalitat does not have to submit to the complex process of multilateral negotiation.
Regulatory capacity
The State’s renunciation
One of the elements put on the table to question the agreement and highlight its confederal character is that it would also hand over to the Generalitat the regulatory capacity, the possibility of establishing the rules, on all taxes. Critics argue that this would widen fiscal inequality.
It could be that in order to comply with it the amount contributed by Catalonia is partially reduced, which in any case could or should be compensated by the State, but that would not mean that it would disappear altogether. In fact, taken to the extreme, it would be enough for Catalonia to receive just one euro more than the recipients for the ordinality to be maintained. Its effect on the system would then be minimal, but it would comply with the letter, obviously not the spirit, of the pact.
Moreover, the pact includes a commitment in the opposite direction, i.e. that whatever the new model, it must ensure that the Catalan contribution ‘must contribute to solidarity with the other autonomous communities so that the services provided by the different autonomous governments to their citizens can reach similar levels, provided that they also make a similar fiscal effort’. This is exactly what is included as a basic principle of equality in the current system of regional financing.
This, by the way, is not being achieved at present, without anyone tearing their hair out, as inequality is one of the realities of the current model. As Madrid demonstrates with its enormously beneficial tax regime for the highest incomes.
To conclude, nothing better than to turn to the words of the same economist quoted at the beginning. He wondered what would happen if the rich in Madrid’s La Moraleja were to keep their income instead of giving it to the rest of Madrid’s citizens. In fact, this is exactly what is happening now, thanks to Madrid’s advantageous tax system. Unparalleled in the rest of Spain and which leaves them out of several taxes that, by the way, are paid in Catalonia.
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