What Was The Fiscal Pact?

As Catalonia moves forward with its independence process, the so-called structures of state involved in the original fiscal pact once again take on importance. This Vanguardia article from November 2011 explains what the fiscal pact was and how the plan was (and still is) to create a Catalan Treasury in order to collect taxes. It’s worth remembering that had Mariano Rajoy agreed to these demands in his meeting with Artur Mas on September 20th 2012, the whole Catalan independence movement might well have been defused before it started. However, as usual, Rajoy refused to listen!

Here’s the link to the article in Spanish

http://www.lavanguardia.com/politica/20111128/54238620892/que-es-el-pacto-fiscal.html

What Is The Fiscal Pact?

During the last electoral campaign, the then aspiring candidate to the presidency, Mariano Rajoy repeated various times that he didn’t know what the fiscal pact was and had no knowledge of its content and called it “literature”. However, the investigation commission on the new finance commission based on the economic concert presented very clear conclusions on the intentions of the Catalan Parliament and Government before the election campaign. The conclusions were passed by CiU, ERC and ICV and rejected by PSC, PP and C’s. However, the socialists and the Partido Popular said they were willing to negotiate.

End the Fiscal Deficit that the current system won’t alleviate

In the first points of the text passed by the commission, the parliamentary groups stress the need for a new model that ends the historic fiscal deficit that “has weakened the economic competitiveness and welfare in Catalonia”. Furthermore, it points out the insufficiency of the current model passed in 2009 after the passing of the Estatut because it doesn’t give “full satisfaction to Catalonia’s financial needs within the common system”

Consequently, the current system, despite supposing a quantitative increase in resources, is more confusing and continues to punish the communities that provide more resources per capita, meaning that Catalonia is the third community in taxation but the fifteenth in resources. Furthermore, the increased spending needs of the communities and the crisis have made the situation even worse. It concludes that Catalonia’s deficit has hardly been reduced under the new system.

The text stresses that “if Catalonia already had a fiscal pact, the Generalitat wouldn’t have to make cuts or if so very much smaller ones”. This statement is based on the fact that the government is obliged to reduce the public deficit by 2.9% in 2011 and 2012 in order to achieve the objective of 1.3% set by the state, a percentage that is well below Catalonia’s structural fiscal deficit which goes up to 8% of the Catalan GDP.

The Basque Concert, the reference

The Catalan Parliament’s proposal doesn’t hide the fact that it wants a new financing system “based on the economic concert”, which means abandoning the common system in favour of a bilateral relationship between the Generalitat and the State. In fact, the text makes continual references to the Basque and Navarran systems even though the Catalan government and has preferred to talk of fiscal pact rather than economic concert. However, in general, there’s very little difference.

The commission also emphasises that it is not necessary to modify the Constitution or the Estatut to achieve this. Reforming the Ley Orgánica de Financiación de las Comunidades Autonómicas (LOFCA) and include an exception to the common system, similar to the Basque Country and Navarre.

This reform would have to be accompanied by a new law to regulate the details of the new Catalan model. Starting from the basis of the Basque law, this would be based on two principles.

A fiscal chapter that regulates the secession of all taxes paid in Catalonia to the Generalitat and the consequent creation of the Agencia Tributaria Catalan or the Catalan Treasury, which collects, manages and pays all taxes and also fulfils inspection functions. Furthermore, Catalan Parliament would have the capacity to make taxation laws in Catalonia. In effect, we’re talking about total fiscal autonomy for Catalonia.

A financial chapter, which would fix how much Catalonia would have to pay in return for services provided by the State and the so-called interterritorial solidarity.

A chapter on bilateral coordination in order to establish the mechanisms to guide the negotiation between the Generalitat and the State as well as periodical reviews of the model. This would be the Comisión Mixta de Asuntos Económicos y Fiscales Estado-Generalitat or Mixed Commission of Economic and Financial Affairs State-Generalitat.

Criteria to Calculate the Solidarity Quota

As the document clearly states, the benefits of the new model will be based on criteria to calculate Catalonia’s solidarity quota towards the State. However, this is the least defined point. In contrast to the Basque quota, which sets a percentage according to criteria of population and other compensation mechanisms, as well as periodical reviews, the conclusions of the commission only set general principles. However, the result must be “similar” to the Basque and Navarran agreements “in terms of resources per inhabitant”.

The Parliament does establish that this quota shouldn’t mean that Catalonia lose positions in the ranking of communities in income per capita as a result and that the fiscal deficit should never exceed that of other EU regions with characteristics and GDP similar to Catalonia. Furthermore, the Generalitat wants to ensure that the solidarity quota is destined to ends which “insures the development of the territories that receive the aid”.

Promote a Popular Consultation

The Generalitat, through Parliament’s conclusions, also reserves the right to develop a law of popular consultations to promote a non-binding consultation on the need for a fiscal pact.

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