Hector Illueca, Second Vice President of the Valencian Generalitat
20 November 2021
Council for Fiscal and Financial Policy. Efe
The main problem is the financial insufficiency of the autonomous communities, which translates into a growing scarcity of resources to effectively manage their powers.
It is not a truism, I assure you: without money there are no public policies, and without sufficient and adequate funding it is not possible to protect the rights of citizens. As the great jurist Cass R. Sunstein would say, rights, any rights, are always public services financed by taxes to improve collective and individual well-being. In compound states like ours, this issue is intertwined with the level of solidarity that must exist between the different territories of the country, but this does not alter the underlying idea. In Spain, for example, the autonomous communities manage matters such as education, health or social policies, and it is evident that they must have sufficient resources to exercise their powers over them. The debate on regional financing is, in reality, a debate on the welfare state that we want, and its importance cannot and should not be underestimated.
Let’s do some history. Since the approval of the Constitution, the regional financing system has been modified on six occasions, giving rise to a debate in which there have been tripping, confrontations and cross accusations between different autonomous communities. It must be recognized, however, that this evolution has made it possible to correct the imbalances as they occurred, as well as to increase the financial autonomy of these public entities and to start the path of fiscal co-responsibility, which undoubtedly constitutes a significant advance in terms of self-government. In general, it can be affirmed that the factors that made possible a relative consensus in the successive reforms of autonomous financing were the progressive decentralization of resources and their increase by the State, thus facilitating the assent of the autonomous communities. . It should be remembered: the last modification, made in 2009, involved the contribution of additional resources by the State amounting to 8,600 million euros.
This perspective allows us to understand much better the terms of the debate on regional financing. Some sectors insist in my view with good reason that the current model is unfair and unsupportive, and it is said that it is especially damaging to the Valencian Community, which is equally true. In fact, we are the only autonomous community that presents a negative fiscal balance despite having a per capita income lower than the average, and it is evident that this circumstance compromises the well-being of citizens. As the Government of Spain has recognized, the Valencian under-financing has multiplied the indebtedness of our Community, and this is a reality that the reform of autonomous financing must necessarily address. The current system suffers from a problem of distribution of resources among the different territories, and it seems reasonable that the criterion of the population prevails in the future distribution of autonomous funds.
Now, although it is difficult for some to recognize it, this is not the only problem posed by the reform of regional financing, it is not even the most important. As we will see immediately, the main problem is the financial insufficiency of the autonomous communities, which translates into a growing scarcity of resources to effectively manage their competences. A recent and well-documented report estimates the increase in resources that would be necessary to meet the social spending needs of the autonomous communities over the next ten years at 36,000 million euros, which represents an average annual increase of 2.1 percent for all of them. This data, or other similar data that could be cited, places the issue of regional financing on a very different terrain that points to the underdevelopment of our welfare state. Let no one doubt it: if the autonomous communities had the resources they really need, the debate on their distribution would be much more serene and the demagogues would have very little space.
This approach, linked to the federal idea of shared government, makes it possible to focus on issues that are usually excluded from public debate. The first is the need for a tax reform that prosecutes fraudsters and integrates the privileged sectors that have traditionally been exempt into the country’s tax base. A reform that, by the way, should establish a tax floor to prevent the transfer of certain taxes to the autonomous communities from resulting in tax competition practices as is happening in the Community of Madrid. The second issue that emerges from this approach is the need to break with the austerity policies incorporated into article 135 of our Constitution, which perpetuates the social deficit and leads the autonomous communities to compete for increasingly scarce funds. Although its application has been suspended due to the pandemic, the needs of the autonomous entities in the short and medium term are incompatible with the fiscal rules contained in said precept and developed in the Budget Stability Law.
In short, the problem of regional financing is not technical, but political, and has to do with the State model and the reform of the Constitution in a federal sense. Of course, the fiscal rules of Article 135 CE must be expelled from the constitutional system, as they constitute an insurmountable obstacle to a lasting and stable reform of regional financing. But not only that. The federal Constitution should also establish the fundamental principles and criteria in this matter, avoiding the de-constitutionalization of an essential issue that cannot be left to the discretion of the ordinary legislator, as is currently the case. And, finally, it would have to attribute to a federal Senate and truly representative of the autonomous communities the power to decide on such a delicate matter, limiting the role of the Council for Fiscal and Financial Policy, which lacks constitutional justification.
The reform of the Constitution is a historical necessity, especially with regard to the territorial model. The rethinking of regional financing can and must be the first step towards a new federalism that responds to the great ecological, social and territorial problems of Spain. Defending the reform of the Constitution is defending the Constitution.