Madrid to increase Catalan government budget by just €70m in 2017 despite positive economic outlook

The mystery figure has finally been revealed: seventy million euros. This is the extra funds the Catalan government will receive as part of next year’s funding and its authorised deficit, compared with what it received this year. The Spanish Treasury took a long time to communicate this information to the autonomous regions and since then, the regional governments have kept this crucial figure under wraps in order to prepare their own budgets.

Sources consulted by ARA indicate that Madrid will transfer a total of 17,852 million euros to the Catalan government as part of its funding system. Of this total, €16,236 million is an advance payment (in the form of a loan the Spanish government makes every year based on estimated tax revenues). This amount is €244 million higher than the advance received in 2016.

To this must be added the balance for the 2015 financial year, which will be received next summer and which early estimates suggest could reach 1,616 million euros, €216 million more than this year.

In short, therefore, the Catalan government will receive 460 million euros’ worth of tax revenues from Madrid. However, the money it receives as part of its approved deficit must first be subtracted from this increase in income. Every year the state gives the communities the exact quantity of money to cover their permitted deficit limit. Given that this year's authorized deficit is 0.7% and next year’s will be 0.5% (in theory, since the targets have to be ratified by the Spanish parliament), this means that the Catalan government will receive close to 1,000 million euros to cover its deficit, that is, €390 million less than in 2016. When asked to comment, the Treasury confirmed the veracity of these figures.

In other words, if we add the €460 million increase in revenues under the finance model and subtract the €390 million resulting from the lower deficit cap, the Catalan government will only receive 70 million euros more. This in spite of the fact that the Spanish economy will grow by 2.4% next year, according to Funcas [The Confederation of Spanish Building Societies] in its survey of average forecasts by leading analysts.

The same figure

The most surprising aspect of the situation is that Madrid has informed the regional governments that the total figure for advance payments for 2017 will be exactly the same as they received in 2016. The Treasury claims that it is not possible to increase the advances since the budget is currently being finalised. Nevertheless, the Treasury, under the leadership of Cristóbal Montoro, admits that the final amount could be reviewed if the 2017 Spanish budget is approved, now that a government has been formed in Madrid.

However, although the final figure for advances for the regions is the same as in 2016, the Treasury has changed the amount each one is to receive by referring to variables such as consumer spending trends, which has a large effect on the collection of VAT. For this reason, Catalonia (the region which collects most VAT) will receive a higher advance next year than in 2016.

The Catalan government prepares its own estimate

Due to the likelihood that the advance payments may increase in the future, the Catalan government has decided to prepare its draft budget (to be presented to parliament on 29 November) with higher advances than initially announced by the Treasury, according to sources close to the government. The figure employed by the government is based on its own estimates of how much the advance payments need to increase, taking into account economic growth.

Sources claim that the advance payments provided by the Treasury "continue to underestimate" current revenues, as has happened repeatedly in recent years. Therefore, to prepare it budget for 2017 the Catalan government will make its own estimates of likely revenues, even though they may prove conservative, which they will subsequently modify if Mariano Rajoy’s government manages to approve a budget for 2017. According to a spokesperson for the Treasury, in such an eventuality the Catalan government would be willing to modify the figure at a later date.