Why doesn't the Generalitat spend more?

Catalonia expects to close the year with only a 0.7% deficit, despite the fall in the economy

One of the surprises of this 2020 is that, in the midst of the covid pandemic, with the worst economic downturn since the Civil War and with the rules of budgetary stability suspended in Europe, Catalonia will only register a 0.7% deficit, if the forecasts of the Generalitat are fulfilled. This is an unexpectedly low figure: only a tenth and a half more than last year, when the economy grew by 2% and everything was going better. What has happened to stop the Generalitat from spending more?

The limitations of the Catalan government have been evident from the start of the pandemic: aid for the affected economic sectors has been scarce, and the freelancers' case was particularly controversial. Despite the fact that there are 547,000 of these workers, initially only 20 million were allocated to them.

From the Catalan Department of Economy it is ensured that they would have wanted to spend more, but were limited: the State has only guaranteed to cover the deficit of the autonomous regions to 0.2%. "Everything that exceeds 0.2% is a deficit that will not be financed", says Albert Castellanos, Secretary of Economy of the Catalan Government. "This means that, if we exceed 0.2%, we will have to keep more bills in the drawer, and this, for example, delays the suppliers' payment", he adds.

In fact, it will do so, as the deficit will reach the aforementioned 0.7%, but the Government has chosen not to raise it further. According to Castellanos, the Catalan government would be doing the economy a "disservice" if it made payment terms to suppliers even worse. The Government already paid their suppliers with an average delay of 44 days (14 days later than the law dictates) last October, the last month with available data.

Criticisms of the Catalan Socialist Party (PSC)

This moderation has enervated the PSC, which in recent weeks has been very critical of the cautions of the Department of Economy. "They have an excessively prudent attitude", Alícia Romero, the PSC's economic spokesperson, believes.

Romero recalls that at the end of September the Spanish Finance Ministry suspended the deficit limits of the autonomous communities (the European Commission suspended them half a year earlier, in March). Castellanos, however, replies that the suspension of these limits is only "half true", because the State has only committed to financing up to 0.2%. "If they don't finance the deficit, generating more deficits doesn't solve the communities' problems". In addition, the Secretary of Economy also regrets that the Treasury waited until the end of September to commit to finance the 0.2%. "Until then, the communities' objective was zero. We spent the first six months of the pandemic with a deficit target of 0%".

The Socialists state that the Spanish government will take over the deficit as long as it does not shoot up. "The ministry has said that with a reasonable deficit the state will pay", says Romero, who does not understand "why ERC has not mentioned this in the budget debate" taking place in Madrid. According to the MP, if instead of closing the year with the 0.7% predicted, the Generalitat would have had 500 million more to spend, the central government would have covered it. The Valencian community, where the Socialists govern, expects to close with a 1.5% deficit.

Budget

The negotiation of the state budget, which was only closed last week, would not have changed much, they say from the Department of Economy. The reason: the administration's calendars. "There are some procedures, some awarding processes... It's hard to understand for anyone who looks at it from the outside, but there are procedures to ensure that public resources are spent where they should be spent, that the principles of competition are applied, and so on", Castellanos says.

Pere Aragonès said this week in Parliament that, despite the deficit being only 0.7%, the Generalitat will end the year having spent 4,800 million more than last year and 3,800 million more than was foreseen in this year's budget.

However, this increase in spending will not trigger the deficit because the vast majority (approximately 3,200 million in the case of Catalonia) has been covered by the special funds that the Spanish government has given to the autonomous communities in order to deal with the pandemic.

Two versions of caution

Albert Castellanos, Secretary of Economy

Castellanos complains that the Spanish government waited until the end of September to suspend the deficit limits of the communities. The European Commission did so in March.

He also assures that the suspension is "half true", since the State has only committed to financing up to 0.2% of the autonomous communities' deficit.

Anything over 0.2% means "delaying payment to suppliers", which is now already delayed by 44 days. 

Alícia Romero, PSC economic spokesperson

Romero believes that the Generalitat is being too "prudent" and that, although the Treasury has formally committed to cover only 0.2% of the autonomous deficit, "the ministry says that, if there is a reasonable deficit, the State will pay for it".

Despite the fact that there are socialist communities, such as Valencia, that foresee reaching a 1.5% deficit, Romero believes that middle ground could have been found. "If instead of 0.7% the Generalitat had ended up with a deficit of 0.9%, it would have had 500 million more to spend", she explains.

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