- Experts call for the greater financial autonomy of the Autonomous Communities, which currently only have the power to manage and administer 13.2% of the model’s total income.
- The latest IEB Report analyses how Catalonia fits into the model, examining options that range from the creation of its own tax authority to the establishment of a new relationship with central government.
Download the last issue of the IEB REPORT
The Barcelona Institute of Economics has published the latest edition of its IEB Report, entitled ‘The long-awaited reform of the regional funding system’, dedicated to analysing the future regional funding model which, following a three-year delay, has become a matter of some urgency for Spain’s central government. The report includes the contributions of six IEB researchers, all experts in the field and all highly aware of the need to revise the funding system. “Autonomy and equity are compatible, but the models provided to date have provided the Autonomous Communities with a limited degree of fiscal autonomy, but with a degree of resource levelling that has proved excessive”, explains Pilar Sorribas, researcher and editor of the report.
In her analysis, IEB researcher, Maite Vilalta, provides us with figures to describe the extent of the current deficiencies in financial autonomy. According to her calculations, the Autonomous Communities (ACs) obtain an average of 85,145.18 million euros each year via different taxes, representing 83.9% of the funding model’s total resources. This figure, however, falls to just 13,353.37 million euros, or 13.2%, if we only take into account the taxes that the ACs actually manage and administer themselves. Vilalta proposes that “Steps could be taken to increase the percentage of income tax that is transferred, to share the management and administration of the main taxes between the central and autonomous governments and, even, to grant the ACs regulatory capacity in relation to the indirect taxes that make up the current tax basket (VAT and special taxes)”.
The analyst proposes two additional measures to comply with the principles of achieving greater autonomy and equity and to overcome the imbalances that the current model generates. “The next reform needs to provide the system with additional resources and comply with the principle of horizontal equity, ensuring that some governments do not end up with greater fiscal capacity than others while making the same tax effort,” says the researcher, who cites the decentralized funding systems of Germany, Canada and Switzerland as points of reference. Vilalta also highlights the need for the ACs of the régimen foral (chartered-regime system) to participate in the levelling mechanism.
How Catalonia fits into the model
The IEB Report also includes reflections on how Catalonia might fit in this future system, taking into account various issues that have formed part of the political debate in recent years. For example, researcher Núria Bosch analyzes the process whereby Catalonia might build its “own treasury”, and considers two possible scenarios: one in which Catalonia remains part of the Spanish State and another in which it becomes an independent state. “Within the State, a bilateral agreement would have to be forged allowing Catalonia to manage the taxes its collected within its own territory, giving it power over these tax, within fixed limits and in line with the models in operation in the United States, Switzerland and Canada, for example”. According to Bosch, the elimination of the single treasury coffer would serve as an incentive for Catalonia to create policies of economic growth, reducing corruption and inefficient spending in the process, and giving voters greater control over public expenditure.
In the case of an independent Catalonia, Bosch believes that the new state would have to do a better job than the Spanish tax authority in tackling the problem of the shadow economy, estimated currently at 22.3% of Catalan GDP, and in this way reduce the level of tax evasion. “To do so, the European Commission estimates there should be at least 1,000 public employees engaged in tax management per million inhabitants, which means that Catalonia’s new tax authority should be expanded from the current staffing level of 5,000 public employees to between 7,000 and 8,000”.
Analyst and former Minister of the Economy and Finances in the Catalan Government, Antoni Castells, also addresses the Catalan question in his report, reflecting on the solutions taken by States when their funding models have not found a consensus among the regions. “Countries like the United Kingdom, Belgium and Canada have faced this situation, but the application of specific solutions to solve the problems of disgruntled territories has served to maintain the stability of the union, reduce calls for independence and, above all, to satisfy the aspirations of different regions that also have different preferences as to how political power should be shared between the common government and self-government”.
Elsewhere in the report, researcher Albert Solé considers that “the reform of the system cannot consider Catalonia as just another Autonomous Community, since the solution to the conflict requires embracing the concept of asymmetric federalism”. In defending his point of view, Solé argues that, with the exception of the Basque Country and Catalonia, the citizens of the rest of the ACs would like less decentralization than that currently provided. “Catalonia is one of the State’s cultural and linguistic minorities and, in such cases, federalism constitutes a safeguard of its rights – a federalism that grants Catalonia powers of self-government and guarantees its autonomy”.
Citizens unaware who they pay their taxes to
Finally, the researchers, José María Durán and Alejandro Esteller consider that the degree of tax autonomy of the ACs is “apparently high”, but stress the high level of ignorance among the citizens about the fate of their taxes. For example, “58% of citizens believe that their income tax is paid in full to the central government, which shows that there is plenty of scope for improving the process of fiscal decentralization”, if what we hope to achieve is true citizen accountability of regional governments.