The key to the coffers

Published by Diari Ara, March 9th 2016. By Albert Carreras.

The Spanish State collects Catalonia’s tax money, takes it to Madrid and sends us an advance as part of the existing regional funding scheme

We usually say that Madrid holds the key to the coffers because it is the Spanish State that collects taxes, whereas over eighty per cent of Catalonia’s funding comes from revenues transferred by Madrid to Barcelona. The Spanish State collects Catalonia’s tax money, takes it to Madrid and sends us an advance as part of the existing regional funding scheme. Unlike with other Spanish regions, the figure levied in Catalonia is always higher than the amount transferred to the Catalan government, including local government, the State’s administration in Catalonia, pensions and benefits. This is what we refer to as “fiscal deficit”.

Holding the key to the coffers affords you power. Likewise, not holding it means being powerless. The Basque Country and Navarre have their own taxation regime and they have the key to their coffers. Even local councils, with a number of important taxes (housing and motor vehicle taxes) have much greater autonomy than the Catalan government. This power means being able to administer the provision of cash flow at one’s discretion: deciding what will be paid out and when. At present, the Catalan government suffers a recurring deficit because while the economic crisis has caused tax revenue to plummet, Madrid has denied it the chance to borrow independently and it has become Catalonia’s sole banker. This is holding the key to the coffers, times two. In the past, Madrid would routinely allow the Generalitat to borrow. Later, towards the end of the PSOE’s most recent term in office (2009-2011), granting permission to borrow cash became a tool to control the regional finances. Afterwards, once the PP took over, they set a cap on the interest rate at which debt had to be paid back, so that banks would simply find it impossible to lend any money to the regions. Eventually, the Spanish State decided that it would become the sole lender of any further debt. The latest step was to place specific demands only on Catalonia’s government. As you can imagine, each of these steps included a number of requirements which meant that you could effectively claim the Generalitat’s finances had been “taken over”.

Read the full article in english, here.