The reform proposal does not include what the independentists demanded at the beginning of the negotiations, but it includes more than a nod to Catalonia, which will keep half of the new funds proposed by the model presented last week by the Ministry of Finance. Specifically, it will account for 216 million of a total of 1,000 million with which the new climate fund is endowed, and 70% of the 2,000 million projected from the VAT-SMEs mechanism, which will allow the autonomies to collect part of the VAT that small and medium-sized companies generate in their territory. Thus, adding the two mechanisms, Catalonia is left with 55% of the total, as extrapolated from the data prepared by the economist Ángel de la Fuente, . The Treasury has not made public calculations in this regard.
The money contributed by these new mechanisms would, however, be only a pinch of the additional resources that the communities would receive with the reform of the system. The financing model presented by the vice president and Minister of Finance, María Jesús Montero, provides for the regional common fund. The bulk of this amount, 16,000 million, would be achieved by increasing the percentage of taxes that the communities transfer to the system, particularly personal income tax and VAT. The rest would come from a greater contribution from the central Administration.
To understand the modification proposed by the Government, the result of a year and a half of negotiation with ERC, we must take a step back. The financing system distributes resources to communities from a common fund that is funded by contributions from the State and the territories themselves. The autonomies put in this basket 75% of their regulatory revenue – calculated without taking into account any tax reductions or increases applied in the exercise of their management -, having transferred 50% of personal income tax and VAT and 58% of special taxes. In addition, other encumbrances are included such as property transfers and documented legal acts, inheritances and donations or taxes on gambling.
The new model plans to expand the transfer of personal income tax to 55% and VAT to 56.5%, in addition to including in the common fund figures such as the wealth tax, the tax on bank deposits or the tax on waste in landfills. That is, the tax capacity of the territories would increase and more resources would be obtained for everyone, assigned later – inhabitants weighted by geographical and demographic variables – which is already the governing criterion of distribution in the current model and which will undergo some adjustments with the reform. The objective is that all communities, regardless of their economic dynamism, can provide public services under similar conditions: health, education and social services.
The closure funds of the current system, which made adjustments to this initial distribution with a distorting effect, according to academic consensus, would thus be excluded from the new model. However, the reform provides for new adjustments, such as the climate fund and the VAT-SMEs mechanism, which according to De la Fuente “reintroduce the arbitrariness that was wisely sought to eliminate.” And these extra resources are those that, according to the economist’s estimates, will have Catalonia as their preferred destination.
The climate fund is endowed with about 1,000 million, two thirds of which will be allocated to and distributed according to the adjusted population, as Montero explained, because they are more vulnerable to extreme environmental effects. A justification that has irritated the northern and interior peninsular territories.
Catalonia would be the second community most benefited by this fund, with 216 million, only behind Andalusia (234 million), according to Fedea calculations. The Valencian Community would receive 141 million and Madrid 105 million, while all the others would be left with less than 100 million each.
In the new VAT-SMEs mechanism the imbalance is more pronounced: Catalonia would be left with 1,441 million of a total of 2,000 estimated by the Treasury. This adjustment provides that the territories that request it—adherence to the instrument is voluntary—can keep part of the VAT that SMEs generate in their territory instead of receiving a transfer based on the consumption index, the criterion currently used to distribute the tax collection (based on the expenditure taxed by the tax).
The Treasury has estimated that only some communities will request it, because in the majority the difference between the relative weight of the VAT of SMEs and the consumption index is negative. Catalonia would be left with three quarters of the total, due to the high number of small and medium-sized companies that make up its productive fabric. If requested, the Valencian Community would receive 232 million, Madrid 191 million, 55 Balearic Islands and 46 Aragon.
All in all, and although De la Fuente calls these new mechanisms “arbitrary,” he also recognizes that “the central core” of the proposal “is very reasonable”: it has fewer distortions and reduces the financing gap per inhabitant. The Treasury, however, has not provided disaggregated information in this regard, fueling the already harsh criticism from the rest of the communities (the majority from the PP), which accuse the Government of having designed an à la carte system for Catalonia.
Smaller gap
The adjusted per capita financing index, expressed in base 100, is the tool that allows us to compare the relative position of each community, beyond the absolute euros it receives. A value of 100 marks the average of the system, so being above it implies superior financing and being below it, a weaker relative position. That is key in the political debate, no matter how much all the autonomies improve in the amount of resources with the proposed plan.
With the current system, according to Fedea data, the picture is clear: nine common regime communities are above the average and six below. In the lower part of the index, territories such as Murcia, the Valencian Community or Andalusia appear, while at the top are Cantabria, the Balearic Islands or La Rioja.
After the reform, although all the communities gain financing in euros, the relationship is reversed and there are nine communities below the average and six above the average. Some of the historically worst financed ones improve their position – such as the Valencian Community, Murcia or Andalusia -, but without crossing the threshold of 100. At the same time, several that started from very high positions decline appreciably, such as Cantabria or La Rioja. Others, such as Extremadura or Castilla y León, go from being overfinanced to being below the 100 point threshold.
With this rearrangement, the gap between the best and worst financed territory is drastically reduced, going from 26.2 to 18.1 points, always according to Fedea calculations. The study center, however, shapes the numbers with its own method, effective financing of homogeneous skills, which, in addition, does not take into account all the changes proposed by the Government in the calculation of the adjusted population. Other academics such as Julio López Laborda, like the Treasury, work with the regulatory collection of the communities. Under this prism, the position of communities such as Catalonia or the Balearic Islands would fall timidly, while that of Aragon or Cantabria would improve. In this case, the gap between the two extremes would be reduced to 17.8 points.
In the political debate, underfinancing is a relative concept. A community is not considered underfunded because it has few euros in absolute terms, but because it is below others with similar needs. With the new model, the group of autonomous communities that may feel aggrieved is expanded, although paradoxically they receive more money than with the current scheme.
