The pressure over the budget or the Treasury’s scam

The system by which most Spanish regions are funded (1) works in a most peculiar way: it is known as the system of advance payments. In July every year, Spain’s Treasury forecasts the tax revenue for the following year and notifies the regional governments of the sum which they will be receiving as an advance payment. Since Spain’s autonomous regions do not have a Treasury Office of their own, all tax revenue is collected by the Spanish Treasury, which then transfers a lump sum to every region so that it may fund the basic services provided by the regional government. In the case of a few regions, Madrid retains some of that revenue until the accounts are settled two years later, when it often becomes apparent that the Treasury had erred in Madrid’s favour by grossly underestimating the amount that the regional government was due. During the last few years of the recession, Catalonia contributed an excess of €4.233bn to the central government’s coffers precisely that way.

Last July, Spain’s Treasury Minister Cristóbal Montoro informed the Catalan authorities that Catalonia would be receiving €17.618bn towards its funding for 2018. Yesterday he went back on his word and announced that the actual sum will be lower: €16.838bn. That is €780m lower than initially expected. Other regional government have also seen their cash payments trimmed after many of them had worked out their budget based on the sum that was announced in the summer.

Mr Montoro’s reasoning is that Spain has not been able to pass a new budget and, therefore, last year’s must be extended, which means that advance payments to regions must be cut back accordingly. However, Monotoro’s subterfuge does not hold water: his July forecast was based on projected tax revenues that won’t be affected by extending the budget another year. If anything, revenue should increase thanks to a positive economic outlook. To make matters worse, with Mr Montoro’s revised advance payment Catalonia will be shortchanged by €125m. If the budget is the same as the previous year, so should be the sum transferred to Catalonia, at the very least.

In fact, minister Montoro’s sleight of hand conceals an attempt to put pressure on lawmakers to approve his budget, now that he cannot count on the support of the Basque Nationalist Party (PNB) in the Spanish parliament. As ever, it is the general public that stand to lose, at least until Catalonia is able to handle all her own taxation affairs.

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Translator’s note:

(1) Unlike all other Spanish regions, the Basque Country and Navarre actually collect all tax revenue and then contribute a percentage to Spain’s coffers in exchange for services rendered by Madrid. This is very much a sore point for many Catalans.