At the launch of the report that questions the nationalist proposals to alter the Catalan funding system FAES launches in Barcelona the FAES report "El mito fiscal. Razones para un debate"

05/11/2012

    _ “When we look at the political debate in recent years on the redistribution of income, the will to falsify data is plain to see”, Gabriel Elorriaga

    _ The debate “does not revolve around the redistribution of income, but on where the original fiscal sovereignty lies”, which “rests in Parliament”, Elorriaga

    _ “The factor that determines the tax burden borne by taxpayers is established by the ability to pay and not by residence”, Juan José Rubio and Santiago Álvarez

    _ “The fiscal pact proposal is contrary to economic and administrative rationality, in addition to opening a tax fragmentation process”, Rubio and Álvarez

    _ “Our model does not differ from those in the neighboring countries in such a way as to predict a fiscal abuse on Catalonia”, Ángel de la Fuente

    _ “Looking at the per capita income and the size of the public sector, the Catalan fiscal deficit does not seem to be particularly high”, De la Fuente

    _ The study of Catalonia’s fiscal balance carried out by the Generalitat “uses criteria which distorts the analysis” which leads to “unrealistic and erroneous conclusions”, Pascual Fernández

    _ Based on analysis of the Generalitat, “fiscal balances show that Catalonia had a surplus with the State Administration”, Fernandez

FAES Foundation has launched in Barcelona the report ‘El mito fiscal. Razones para un debate’* on November 5, which dismantles the thesis of tax plundering in Catalonia. The report furnishes reasons for the debate “on the dogma where Catalan nationalism aims to sustain its fragile position”. “That is, the alleged fiscal abuse suffered by Catalan citizens with the current model of State, from which follows the urgency of changing the funding system of Catalonia and then advancing along the path of sovereignty, as an unavoidable yearning after many years of injustice”, as the report’s introduction states.

The FAES paper analyzes, from different angles, “arguments that question the rigor, the basis and the reasons behind the proposals of the Government of Catalonia”. To do this, the report gathers articles by the Partido Popular’s MP, Gabriel Elorriaga; the Professor of Public Finance Juan José Rubio; the Professor of the same subject Santiago Álvarez; the analyst at the The Spanish National Research Council (CSIC) Ángel de la Fuente; and the director of the Economics Centre of Rey Juan Carlos University, Pascual Fernández. The launch’s presentations were carried out by the Secretary-General of FAES, Javier Zarzalejos, the Executive Director of Fomento de Trabajo Nacional Joaquín Trigo, and the authors of the text.

NATION AND SOLIDARITY
Gabriel Elorriaga shows in his article ‘Nación y Solidaridad’ that “When we look at the political debate in recent years on the redistribution of income, the first thing that strikes the reader is some people’s will to falsify data”, Gabriel Elorriaga". “All too often, what are just mere consequences of widely accepted values are presented as objective and undesirable realities. Other times, protest harangues are launched seeking to cover management failures or secessionist aspirations”, he said.

In this sense, Elorriaga analysed the principle of territorial solidarity enshrined in the Spanish Constitution and stressed that the debate on the fiscal sovereignty of Catalonia, “which was in force in 1978, and was then apparently ended, is the same which they seek to reopen today”. He also asserted that the debate “does not revolve around the most appropriate redistribution of income, but on where the original fiscal sovereignty lies”. That sovereignty “rests in Parliament, where any discussion on the matter should be submitted to”.

Throughout the text, the popular MP also noted that “the position where the Catalan society has been dragged to is the result of a deeply irresponsible game between local forces obsessed with controlling the political space, a struggle in which all barriers of common sense have been crossed”. “Opportunism and immediacy have won over consistency and prudence, and the results could hardly be more disastrous”, Elorriaga said.

Regarding the role of political parties in Catalonia, Elorriaga stresses that “it is easy to understand that a separatist party like ERC should ignore the Constitution, and it’s surprising that one of its architects, such as CiU, should do so now; but – he notes – the greatest contradictions are within the Socialist Party”. “When a national political force criticises the fiscal balances among the different provinces making up the same nation, they should be expressing their dissatisfaction with the progressivity of the tax structure; and yet, Catalan socialism has considered that reducing its fiscal balance deficit was the priority”, the author declared.

Elorriaga concludes his article by stating that “all Spanish governments have sat and will sit down to discuss the best way to allocate powers, to distribute resources more fairly, but what no government should ever do is channel claims that only seek the disintegration of the State and the national disintegration of Spain”.

THE MYTH OF TAX PLUNDERING
In their article ‘El mito del expolio fiscal’, Juan José Rubio and Santiago Álvarez argue that “it is unreasonable to evaluate all the actions of the central public sector in terms of their territorial impact” since “this is a larger problem which, for the most part, should be addressed in the context of individuals”.

In this regard, the Professor and lecturer of Public Finance highlight in the text that “The factor that determines the tax burden borne by taxpayers is established by the ability to pay and not by residence”. “If a resident in Catalonia has to pay more income tax than a resident in Aragon or La Rioja with identical incomes, it’s because the government of their community applies a higher tax rate to the regional part of the tax, which has no impact on the fiscal balance, as that tax collection is received by the autonomous community”. As to the state part of the tax, the three would pay the same", they exemplified.

Furthermore, the authors state that “The fiscal pact proposal is contrary to economic and administrative rationality, in addition to opening a tax fragmentation process which would compromise the viability of the economic functions of the State and would infringe the principle of equality and territorial solidarity enshrined in the Spanish Constitution”.

The text argues the infeasibility of the fiscal pact “from the point of view of equity and efficiency, but also for administrative and political reasons” and stresses that carrying it out would entail “a very high cost, both economic and social”. It also proposes “a simplification of the system that guarantees the relative position of each region regarding per capita funding and a review of the elements that control the degree of horizontal and vertical levelling, and a review of the cost factors that the system recognizes”.

FISCAL DEFICIT IN PERSPECTIVE
Ángel de la Fuente, meanwhile, states in ‘¿Cisne negro o pollo del montón? El déficit fiscal catalán en perspectiva’ that the “thesis of the Catalonian plunder is highly implausible”. “Neither the tax nor the Spanish social security systems nor our territorial funding model differ from those in the neighbouring countries in such a way as to predict a fiscal abuse on Catalonia in particular, or on our richest regions in general”, he argues in his article.

In the text, the CSIC economist argues that “Catalonia fits perfectly into the territorial redistribution pattern observed in the United States when we abstract the size of the Central Government and work with the expenses that ‘return’ to each territory per euro or dollar of taxes paid”. “This makes it very difficult to believe that the Catalan fiscal balance may be lower than that of the rich regions of continental European countries, which generally have larger public sectors and are more redistributive than the American ones”, he notes thereon.

In this sense, the author notes that “Looking at the per capita income and the size of the public sector, the Catalan fiscal deficit does not seem to be particularly high”. He also states that “most of the data provided by the Generalitat studies” do not suggest “at all, that Catalonia is especially mistreated in fiscal terms, once we take into account its level of income relative to the corresponding national average”.

However, De la Fuente also stresses that “there are no consistent data to enable valid comparisons with other countries”, and concludes that “there is no information to suggest in any way that Catalonia is a special case”.

FISCAL BALANCES
Finally, Pascual Fernández analyses and comments in ‘La balanza fiscal de Cataluña 2006-2009. Análisis del estudio de la Generalitat’ the calculations made by the Department d’Economia i Coneixement de la Generalitat on the fiscal balance between Catalonia and the central public sector for the years 2006-2009. The author explains that “the methodologies applied in the study are known in monetary flow approaches and flow benefits” and believes that both are “alternative methods, but not complementary, because the strict application of the former presents technical inconsistencies which produce biases in the calculations”.

In this sense, Fernández stressed that, “when strictly applying the monetary flow approach”, the study “uses criteria that bias and undermine the quality of the analysis”, since it assumes “unrealistic” arguments when “allocating to a region expenses that do not belong to it and therefore lessen those of other regions, or by directly deleting the entire expenditure incurred abroad from the distribution between regions”. “The worst thing of these calculation hypotheses is that if the method of monetary flow is applied strictly, with unrealistic criteria, the calculation can hardly be real”.

All this, together with the fact that the Generalitat also “remakes the calculation of fiscal balances estimating an absolutely hypothetical deficit or surplus for each year”, leads Fernandez to the conclusion that “the methodology used by the Generalitat is in part, highly questionable and, from a technical point of view, difficult to accept, because it leads to clearly unrealistic and erroneous conclusions”. “This is particularly evident when real data are mixed with fictitious estimates”, he said.

In spite of the methodology used, the author revealed that the study of the Generalitat concludes that “the fiscal balance of Catalonia in 2009 had a surplus with the Central State Government, as a result of the difference between the non-financial flows of incomes and payments”. However, Fernandez stated that “it would be desirable to promote a technical, open and orthodox debate, that would set reasonable criteria that were not so contentious and unassumable”.