Spain’s devolution system keeps choking Catalonia

Every day further evidence emerges that the current system of devolved regional powers holds a stranglehold on Catalonia and the situation is fast becoming unbearable. Spain’s regional system is no longer useful and contributes nothing to Catalonia’s governance. It does not solve the problems of the Catalans nor does it afford them greater well-being. Since that is the way that a good deal of Catalan society feels, it has chosen to pursue the transformation of Catalonia into an independent nation as the only way out of the cul-de-sac. These citizens have abandoned all hope --to be fair, some of them never had any-- that Catalonia can possibly find a suitable fit within Spain, one that recognises it as a nation and that affords it enough self-rule to fully satisfy the demands and needs of the Catalan people.

The current Spanish government does not believe in the present State of semi-autonomous regions and that is why it is implementing tough recentralising policies that undermine its workings. This stance can be seen in many instances. Some examples are the Spanish executive’s recent appeals filed against the Catalan decree on heating poverty and the law that aimed to regulate the opening hours of retail outlets. The Spanish Constitutional Court has struck down both of them. The Catalan government’s margin for devising its own policies is becoming smaller and smaller. Where did devolution and self-rule go?

Another area where it is easy to see how meagre Catalonia’s powers are is that of public finances. This became apparent last week when the Catalan executive presented its draft budget for 2015. The draft shows how the bulk of Catalonia’s income does not derive directly from the taxes levied in the region and its policies on taxation, which would be the correct scenario. Rather, it depends on the will of the Spanish government.

On the one hand, Madrid advances a lump sum from the main taxes it collects (income tax, VAT, special taxes) --which the Catalan government isn’t allowed to levy-- towards the percentage that Catalonia is entitled to. This advance is independent of the actual amount levied. Therefore, if the total amount collected is greater than Madrid’s original forecast, the advance still remains the same. Catalonia’s coffers will not receive the additional income until two years later, once the budget year is finally closed. So, even though the Catalan economy may grow next year --such is the Catalan government’s forecast-- Catalonia won’t be able to benefit from the higher income expected from taxation.

On the other hand, Madrid sets very stringent public deficit targets on the regions. The way it splits the deficit target set by the European Commission for the entire Spanish public sector (4.2 per cent of GDP in 2015) over the various layers of government does not reflect the relative importance of each one of them. In 2015, Madrid will only allow the regions a deficit of up to 0.7 per cent of the GDP, which is one sixth of the total. However, the regions make up a third of the whole Spanish public spending. Local governments are set a goal of zero per cent, whereas the central government is allowed a deficit of up to 3.5 per cent of the GDP.

In order to meet its deficit target, the Catalan government might have done one of two things: it could have either made further cutbacks or found other sources of income. It wisely chose to do the latter and has budgeted as income several debts that Madrid is still to pay on a number of items. On of them is the failure to comply with what is stated in the Third Additional Provision of the Catalan Charter, whereby state investment in Catalan infrastructures is expected to match the proportion represented by Catalonia’s GDP as a proportion of the Spanish GDP. The Catalan government has estimated this outstanding debt to be €2.5bn, but whether this is paid or not is up to the Spanish government. Their political will, as we can see on a daily basis, is not exactly favourable to Catalonia. So, once again, the Catalan government’s financial resources are dependent on Madrid.

Likewise, the government of Catalonia relies on the Spanish executive to be able to sell Catalan bonds because Catalonia has no Treasury of its own and, therefore, it can’t offer any guarantees to buyers. Catalonia can only borrow via the FLA (Regional Liquidity Fund, in Spanish), a system devised by Madrid to lend funds to the Spanish regions. The worst about it is that every time that Catalonia borrows cash through this system, the Spanish government brags about how it is helping out the Catalans. But, as a matter of fact, Catalonia isn’t getting a handout at all, as all those funds come from tax money levied in Catalonia that ends up in Madrid’s coffers. Let us not forget about Catalonia’s fiscal deficit.

The Spanish government sees the state as a single entity and, in terms of the treasury, it is only willing to have one single kitty. As far as they are concerned, all the tax money belongs to the State. The regions and their government are not part of the picture. That’s why they claim that they are helping Catalonia with the FLA.

To sum up, the model of regions with devolved powers is no longer valid for Catalonia. The Catalan government’s finances will not improve significantly by merely amending --once again-- the regional finance system. Only having our own treasury as an independent nation will make a difference.