November 11, 2019

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Home » Content » De la Fuente: “Catalonia has more fiscal autonomy than a German ‘land’”
The director of Fedea believes that ordinality could be a good solution for the new financing system and that "something that is healthy has been sold as a tremendous injustice"

Manel Manchón

03.11.2019 00:00 h.

Ángel de la Fuente (Gijón, 1962) is the director of Fedea, the Foundation for Applied Economics Studies, one of the decisive references of economic thought in Spain, which seeks to implement the reforms that the country needs. Doctor in Economic Sciences from the University of Pennsylvania, and MBA from the University of Drexel, he worked on his return to Spain at the Institute of Economic Analysis of the CSIC and worked as an associate professor at the Autonomous University of Barcelona. He is an expert in the economics of the autonomous communities and in the financing system, whose model must be renewed at some point. De la Fuente participated in the commission of experts that the previous PP government convened, and has prepared the latest studies for BBVA on the economic flows of the autonomous communities. In this interview with Crónica Global, he points out that Spanish communities, such as Catalonia, “have more fiscal autonomy than a German ‘land’”, and that there has been  a political debate that has distorted reality. De la Fuente believes that, without promising anything, addressing a new financing model could be a good start to resolve the Catalan political conflict.

–Question: The new government after the elections of November 10, if it ends up being set, will have to solve among other things the financing of the autonomous communities. What, in your opinion, should be the main change?

–Answer: The reform should have three main priorities: equity, responsibility and transparency / simplicity. The first is to achieve a more equitable distribution of resources between communities, reducing the high inequality in financing per adjusted inhabitant (to homogeneous competences and equal fiscal effort) that now exists and eliminating the capricious changes that the current system generates in the management of communities in terms of this variable. The second, to increase the level of fiscal responsibility of the autonomous communities, so that the communities wanting to raise the expenses above what the system allows from the start also have to face the political costs of raising taxes to pay for it. And third, to make the system understandable to the bulk of citizens. The 2017 Committee of Experts report offers concrete suggestions for moving forward on all three fronts and could be a good starting point.

–Q. You talk about financing per adjusted inhabitant. What does that mean for Catalonia?

– A. The cost per inhabitant of the services provided by the autonomies varies from one community to another depending on things such as the age structure of the population (which directly affects the needs of health and educational services), their dispersion in the territory, its extension, insularity … Therefore, the pure and hard population is not a good indicator of need and that is why the system corrects it for these factors using a fairly reasonable formula, although certainly improvable. In the Catalan case, the adjustment is very small because in these aspects the community is not very different from the Spanish average.

–Q. In that calculation, from the public services that each citizen receives, is Catalonia on average?

–A. Yes. With small fluctuations, Catalonia has generally been very close to the average of the common regime communities in terms of homogeneous financing per adjusted inhabitant from 2002 until now.

-Q. What story is necessary or possibly useful to reconsider the idea of ​​the fiscal deficit, or of the constant loss of resources that nationalism has put forward, but also Catalan socialism, in relation to Catalonia?

–A. The problem is that something that is perfectly normal and healthy has been sold as a tremendous injustice: that the population of a relatively rich community pay more in state taxes than they receive from the State in services and economic benefits (and do so, In addition, to a similar extent to what we observe in similar income territories in Spain and other countries). If we changed “community” to “individual” nobody would dispute that this has to be this way, but something strange happens when we make the aggregations by territories. It would take more pedagogy to combat the demagogy that has been done with this issue.

– Q. One of the core ideas installed in Catalonia, but also in other communities, is that the autonomies receive finalist line items, and therefore, the maneuvering capacity is minimal. What amount of truth is there in it?

– A. Little. The bulk of regional financing is unconditioned, not finalist. Of course there is room for maneuver to spend it in different ways. Or to spend more or less, raising or lowering taxes where appropriate.

– Q. The Government of the PP, and also now the Government of the PSOE and leaders of the two parties, point out that Spain is one of the most decentralized countries in the world. Is that equivalent to real autonomy for the autonomous communities?

-A. Measuring the degree of decentralization is somewhat complicated, but in any case this is quite high in Spain. In terms of the relative weight of regional spending, only Canada is clearly above us within the OECD. In other matters we would have to refine more. For example, the US states weigh less on total public spending than our autonomous communities (basically because there is little public health and education is usually local responsibility), but they have more regulatory capacity in criminal or fiscal matters, for example. But regardless of our exact position in the ranking, the Spanish autonomous communities have competencies at least similar to those of their counterparts in other federal countries and enjoy very real autonomy.

– Q. Following this scheme, do Spanish communities have more autonomy than German ‘Länder’?

– A. If by autonomy we understand the possibility of doing different things, without any doubt, especially in fiscal matters. We can say, therefore, that Catalonia has more fiscal autonomy than a German ‘land’. In Germany, the ‘länder’ apply basically uniform tax rules for all, with very little capacity, for example, to modify tax scales or deductions, while autonomous communities can raise or lower the rates of personal income tax and other important taxes. On the other hand, the ‘Länder’ as a whole have a great capacity to influence the content of these laws, because these must also be approved by an upper chamber (the Bundesrat) that is composed entirely of representatives of regional governments. Something similar happens also in other areas. Therefore, we could say that the ‘länder’ have less autonomy but more collective capacity to influence state regulations.

– Q. Have the investments by the State in Catalonia been really below average in a long period of time? How much, if so? The Chamber of Commerce or Foment have insisted that this is the real problem.

–A. I do not have the impression that Catalan infrastructures are bad in relation to the rest of Spain. Of course, they are not in AVE, ports and airports. But commuter trains is quite a different story, and the delay of the Mediterranean railway axis cannot be understood, which should be a priority investment for Spain. If we go to the numbers, it depends a lot on how they are looked at. With the data published in 2017 by the IVIE and the BBVA Foundation (If I remember well, referred to 2013), the Catalan index of relative infrastructure provision was at 84 on an average of 100 for the whole of Spain when working with the stock of infrastructures per unit of GDP, in 98 if the endowment per inhabitant is used and in 246 with the stock per square kilometer. The complaint is therefore based on a relatively low value of the ratio between infrastructure stock and GDP. This ratio would imply that infrastructure investment in Catalonia would have an expected return that exceeds the Spanish average. With efficiency criteria, therefore, the complaint would have a certain basis. I would be in favor of giving more weight to this criterion in the formulation of the Spanish investment policy and that would lead to investing more here. But also in other regions such as Madrid, the Balearic Islands, Navarra and the Basque Country, which would have higher expected returns.

– Q. Can it be understood that these investments, when budgeted, are then executed in the Community of Madrid at a much higher percentage than in Catalonia? Is the real problem that real implementations fall far short of what is budgeted?

– A Well, if the implementations were always so low, the indexes I just mentioned would not be the ones I have quoted. I don’t have a clear idea of ​​the possible severity of the problem. But I have got the impression, on the other hand, that doing works here tends to be more complicated than in other places because nobody wants them to go through their municipality or near their house and we organize ourselves to avoid it.

– Q. You have indicated that ordinality would make some sense, that the principle should be respected that whoever contributes the most, at least does not receive less, in terms of income or financing per adjusted inhabitant. Should we modify the system to achieve that goal?

– A. Ordinality is a very reasonable restriction, provided that it is applied in terms of financing per adjusted inhabitant (that is, per unit of need). Differences in needs may justify a community receiving less funding per inhabitant than another that pays more taxes by applying the same tax scale, but it is not logical or fair that this situation occurs when the needs are the same. Right now, the system allows it and that is one of the things that would undoubtedly have to be fixed in the next reform.

– Q. Do you understand that this is the central problem of the relationship of Catalonia with the whole of Spain, and that if it is addressed, could a solution be found to the current political problem in Catalonia?

–A. I don’t think so, I’m afraid things are much more complicated. But somewhere you have to start and the financing system is probably a good candidate because the economic issue is a significant part of the problem and at the same time it is easier to deal coldly than other issues of a more emotional nature. If we manage to design a new system that can be explained to non-specialists and that incorporates distribution criteria that we can all consider reasonable or at least not clearly unfair, we will have taken a first step that may be important.

– Q. Could that be an element of agreement between political forces such as Citizens, PSC and the pro-independence parties that want to be reasonable and practical?

– A. We should try, but we cannot restrict ourselves to Catalonia because the system has to be for everyone. It would be necessary to begin by looking for an agreement between the main parties because their national implantation should make them prone to think about the general interests instead of those of a certain community. In addition, their collaboration would be essential to achieve thereafter the acceptance of the agreement by the autonomous governments.

https://cronicaglobal.elespanol.com/pensamiento/conversaciones-sobre-cataluna/fuente-cataluna-autonomia-fiscal-land-aleman_288173_102.html

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