The true intentions of Minister Montoro

Spain’s Treasury seizes Catalonia's revenue to show who has the key to the strongbox —that is, who's in charge

Albert Carreras
3 min

Montoro's order, announced after last Friday's cabinet meeting and published in the BOE (Official State Bulletin) on Saturday, is a mixture of various elements. As with the order on November 20, 2015, which was issued in reaction to the Catalan Parliament's formal declaration initiating the process towards independence, Spain’s Treasury Ministry aims to take control of the Generalitat's treasury. They are reminding us that they hold the key to the strongbox. At the time they took advantage of the fact that the Generalitat (and all the Autonomous Communities) were expecting a large payment -- three billion euros just for Catalonia-- from the Regional Liquidity Fund (FLA) to set special conditions only for Catalonia. The FLA finances the authorized deficit of the autonomous regions and refinances debt payments. The Treasury increased the degree of ordinary intervention already in place with the FLA with two additional measures that only applied to Catalonia: 1) to pay the three billion in ten monthly payments, and 2) change the criteria for setting payment priorities that had been in effect up to that time, whereby suppliers were first in line. That was a hard blow for the Catalan government’s suppliers, who were banking on receiving payment for outstanding debt via the much-anticipated FLA. The reaction of the Generalitat --very opportunely played by the Minister for Economy and Knowledge-- allowed Treasury to take a step back and pay almost all the FLA immediately. But the change in priorities remained written in black and white.

The order published last Saturday continues the retaliatory response to a decision by the Generalitat, and revisits that change of priorities. The mixture concocted by Montoro has crystallized around two very important elements. The first is that the FLA-- financing of the deficit-- is no longer in play, but it does effect the monthly advance payment of the tax revenue owed to the Generalitat. As has been noted these past few days, the Generalitat has the right to some tax receipts (50% of IRPF [income tax], 50% of VAT, 58% of special taxes), and the central government pays a monthly advance of an estimate of the total tax collection. The final reckoning is done in July two years later (for 2017 it will take place in July 2019). Now the Spanish Treasury has taken over the monthly payments --the revenue that belongs to the Generalitat-- so as to show who holds the key to the strongbox-- that is, who is in charge. Treasury will decide the priorities for payment, which are those that were defined on November 20, 2015. But they take it a step further: they say that they will pay directly, or require auditors and banks to certify that the payments made by the Generalitat are not related to the October 1st referendum. This control over the monthly advance is a takeover of the ordinary revenue of the Generalitat as defined by Spanish legislation on regional financing. It has nothing to do with the FLA. It has nothing to do with the Law of Budgetary Stability. It is not related to the deficit or debt. It is a strictly punitive measure and, as such, the Generalitat is justly arguing that it is a back-door application of Article 155 of the Constitution [which allows the Spanish central government to take control over a regional government].

The second element of Montoro's mix is that it requires the Generalitat to agree to a "non-availability agreement"-- that is, to immediately shut down spending that was approved in Catalonia's 2017 budget. Treasury is excluding all of the sections that it already prioritized in November 2015, which are those that it believes have nothing to do with the organization of the October 1st referendum and which are linked to the provision of services --regulated by the central government-- to the public, and which cannot be left unpaid without the non-payment coming back to harm it. Minister Montoro is using the excuse that he is looking for a section that could serve to finance the referendum to apply the Spanish Law on Budgetary Stability against the Generalitat. The Catalan Vice-president and Minister of Economy and Finance has responded —and rightly so— that there is no reason to apply the Law of Budgetary Stability against Catalonia. The Generalitat's finances have improved significantly, and the enormous payment under the financing model for 2015 received in July 2017 left its accounts in very good shape. Montoro has let his secret plan for the central administration and Social Security System's deficit out of the box: get the Generalitat to pay for it. We are facing an outrageous centrifugation of the Spanish central deficit. Treasury could expect to reduce the Generalitat's expenses through the end of the year by one or two billion euros. Madrid will point to this before the European Commission as their own good budgetary management. This is a model that has been used frequently throughout the crisis and which is being repeated once again. It is yet more tax deficit: Catalans must pay taxes to Spain but aren’t allowed to make public expenditures in Catalonia.

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