The latest report on regional “budget execution” from the Ministry of Finance, with data up to April, shows that the deficit (the imbalance between income and expenditure) accumulated in 2024 in the majority of Autonomous Communities governed by the PP (whether in coalition with Vox or not) exceeds the national average. One of the main reasons is the downward fiscal competition, in which the case of Andalusia stands out, the only territory where the collection of all taxes ceded by the State is falling after signing up to the tax cuts spurred by the Isabel Díaz Ayuso Executive in Madrid.
The last few years have been a “season of sales” in the Autonomous Communities, according to various experts. A policy of tax cuts and bonuses under the premise that the loss of income would be compensated by greater growth in economic activity, more investment and more job creation, which has not been fulfilled in many cases, as reflected in the data, and which clashes with the demands for “adjustments” that have returned from the European Commission with the new fiscal rules.
The Treasury report also highlights the drop in revenue in 2024 from the Inheritance and Gift Tax in the Balearic Islands, Cantabria, Galicia, La Rioja and the Valencian Community, compared to the first four months of 2023. All governed by the right. In fact, the latter presents a ‘picture’ similar to Andalusia with respect to the rest of the transferred taxes.
A fiscal model that the President of the Government, Pedro Sánchez, openly criticised this week in an interview on Cadena Ser, after being asked about the debate on “the singular financing” of Catalonia that Esquerra Republicana has introduced in the negotiations for the investiture of Salvador Illa (of the PSC) as President of the Generalitat. “I believe that the main problem that the autonomous State faces right now when we talk about the financing of public income to be able to sustain the pillars of the welfare state is, on the one hand, the resources, but, above all, this downward fiscal competition that the Popular Party governments have opened with Vox,” said Sánchez.
“Because the paradox is that we are seeing how these governments of the Popular Party or the Popular Party with Vox are reducing taxes or eliminating taxes on the rich. Therefore, there is a reduction in public revenue and, therefore, a deterioration in public services. And they are also asking the Spanish Government to give them more resources,” he added.
The most important taxes transferred to the Autonomous Communities by the State are Wealth Tax, Inheritance Tax, Transfer Tax and Documented Legal Acts, Gambling Tax and Special Taxes on Certain Means of Transport, together with a part of the Personal Income Tax (IRPF). In March, the General Council of Economists (CGE) already warned in a report that more than half of the regions reduced this autonomous IRPF rate between 2022 and 2023.
The widespread justification for these “reductions” has been to “alleviate” the impact of inflation on families, but it has mainly coincided among the Autonomous Communities governed by the right (Madrid, Aragon, Extremadura, Balearic Islands, La Rioja, Canary Islands, Euskadi… and also Navarre).
In parallel, almost all regions have lowered or reduced taxes on inheritances and donations, and they even reacted en masse to the approval of the Solidarity Tax on Large Fortunes by the coalition government precisely to remedy the downward fiscal competition (before the previous 100% reductions in Madrid and Andalusia, and 50% in Galicia).
“In its first year (2023) of existence, [este impuesto a las Grandes Fortunas] The tax on wealth in the Community of Madrid was raised in the region of 640 million euros. On the other hand, the latest statistics on the results of the Wealth Tax indicate that the tax rate in the Community of Madrid from people whose wealth exceeds 2 million euros, who are obliged to declare even if they do not have to pay the 100% bonus, is more than 1.2 billion euros. We are talking about less than the richest 1% of the region, less than 20,000 taxpayers. Which means that if the State had retained the power to regulate the tax, it would have collected, only in Madrid and only from wealth exceeding 2 million (less than 1% of the Madrid population), double the amount collected by the Tax on Large Fortunes in all of Spain”, explains the expert Ricardo Rodríguez in a recent article.
The downward fiscal competition promoted by the right is muddying the debate on the reform of the financing that the Government and the Autonomous Communities are going to address in the Council of Fiscal and Financial Policy, which will be convened this July, as confirmed by the First Vice President and Minister of Finance, María Jesús Montero. A reform conditioned by the demands of a “singular financing” by the nationalist parties of Catalonia, with the agreements of Euskadi and Navarra as a model.
“When we talk about regional financing, what are we talking about? We are talking about how we finance public health, public education, dependency, all those welfare state policies that are in the hands of the autonomous communities,” Pedro Sánchez reflected on Monday.
“Treating unequally those who are unequal”
“This is a Government that for the last six years has only strengthened the pillars of the Welfare State. We have put more resources than ever into dependency, by the way, reversing the cuts that the right inflicted when it governed in the National Dependency System. In education, for example, we are making progress in the universalisation of education from 0 to 3 years. In these six years we have invested or transferred to the Autonomous Communities, to be more exact, no more and no less than 250,000 million euros more on average than what Mr. Rajoy did when he governed Spain,” he continued.
“Therefore, there is a clear commitment to strengthening the pillars of the Welfare State that are in the hands of the Autonomous Communities. And there is also a clear commitment to incorporating these unique characteristics of all the territories into the new system of autonomous financing. That is my commitment,” said the President of the Government, who believes that “all the autonomous communities have their unique characteristics and, therefore, we have to respect them and incorporate them, because in the end that is also the guarantee of equality. Treating unequally those who are unequal”
Pedro Sánchez’s proposal involves “a multilateral negotiation.” “Well, the Constitution also tells you so,” he added. The financing of each autonomous community “is different, although it obviously has some parameters that are common, so to speak, and that is where multilateralism comes from. But the financing that the community of Asturias or Galicia has is not the same as that of highly densely populated autonomous communities, such as Catalonia, Valencia or Madrid. But well, it is an open debate. We have not renewed the system of autonomous financing since 2010. And I think that the main party to be questioned should be the party that currently holds the majority of governments, whether alone or in coalition with the other party,” he concluded.
A warning about a wave of appeals of unconstitutionality by the rest of the territories if a “singular financing” for Catalonia were approved is made by the professor José María Lago, in another interview: “[La Carta Magna] It does not in any way provide for specific financing systems, other than those of the Basque Country and Navarre, which would have to be modified and adjusted extraordinarily. We cannot create 17 specific financing regimes for the communities. It is obviously impossible to sustain a financing system in which taxes, basically and with minor differences, are the same, taxpayers are the same, citizens’ contributions are the same and the financing per inhabitant to cover health, education and social services is different.”
The agreement for Pedro Sánchez’s investiture between the PSOE and ERC already included “a significant improvement in public resources allocated to the citizens of Catalonia”. In that document, signed at the end of 2023, there is a section entitled “singular management” that gives an idea of how far the Government would be willing to go. This agreement includes the need for transfers from the State to finance the security services (of the Mossos) that are the sole responsibility of the Generalitat, unlike the majority of the Autonomous Communities, as is the case with prisons. Likewise, more money is contemplated for “the new judicial bodies”, for “research and development” and for scholarships.
The new demands of nationalism would go much further and would seek to collect 100% of the taxes paid in Catalonia and then transfer a portion to the State, in the style of the agreements between the Basque Country and Navarre. Again, a ‘quota’ for the services provided by the State in the Autonomous Community, plus another amount to “contribute to equity between territories.”
Source: www.eldiario.es
