Catalonia could receive an additional 9.1 billion euros a year if it had the same tax sovereignty as the Basque Country. This is the conclusion of the report presented by the group Economists for Welfare, of the Economists Society of Catalonia, this Tuesday, which shows what could be done in Catalonia if there was "fair funding". The annual sum of more than 9 billion euros is the additional amount that could be spent on education, health, social services, housing and suburban rail, areas that have a direct impact on the well-being of the Catalan population.
The study, carried out by economists Albert Carreras, Joan B. Casas, Júlia Montserrat, Daniel Quer, Francesc Raventós and Josep Reyner, sets out the reasons, and offers solutions, for the progressive worsening of public infrastructures, which have a direct impact on the quality of life of Catalans and which experts predict will be aggravated in the post-Covid period. Among examples given are the long waiting lists for surgical operations, the lack of affordable housing or the few free nurseries, among other issues that the study sets out.
The study concludes that Catalonia generates the resources to deal with these problems - but it cannot use those resources. And it says that the difference between the taxes that Catalans pay to the Spanish state and the expenditure that the central government makes in Catalonia, including pensions and interest on Spanish debt, has been situated historically at around 16 billion euros (8% of Catalan GDP). The economists state that Catalonia suffers from "underfunding and underinvestment".
How does the underfunding come about?
The study explains and summarizes the reasons why Catalonia contributes more than it receives from the Spanish state, being the third-ranked Spanish autonomous community in terms of tax contributions made per capita, but at the same time the one with least funds per capita to spend. First of all, Catalonia does not have an autonomous financing model such as that of the Basque Country or Navarra, based on a special concerted economic deal. Under this system, the communities themselves collect taxes and only pay the state a "quota" for the services it provides them, without contributing anything which is used to assist the other communities.
On the other hand, the study also shows low investment by central government in Catalonia - with only 11.8% of Spanish infrastructure investment executed between 2013 and 2018 being destined to Catalonia, when its population represents 16% and GDP 19% of the Spanish total. Finally, according to the economists, Madrid's "hypercapitality" means that, despite being a major capital contributor, it receives benefits derived from its status as capital much higher than the fiscal deficit.
The Economists for Welfare recall in the study that Catalonia contributes an average of 3,224 euros per year per inhabitant to the financing system, while it receives 2,393 euros - correcting for price levels - and is thus the autonomous community which receives the second-lowest amount per capita. They state that "if Catalonia could directly enter and manage its own revenues, it could solve the shortcomings of public services", and adds that the Basque Country currently has 85% more resources per head of population.
The report states that underfunding and underinvestment have also caused the Catalan GDP to grow by only 14.2%, while the rest of the state has done so by 17.8%, taking into account price levels. This has also had an effect on indicators of welfare such as its consumption capacity per capita, which has grown by only 1.7% while increasing by 8.6% in the rest of the state.
The economist group estimates that if the Catalan government managed its own taxes it could have an additional 9.017 billion euros a year to allocate to basic welfare state services. The report even calculates the figures that could be invested in each major budget area and the consquent reduction in the deterioration of certain services, if the Basque Country's financing model were put into force in Catalonia:
Education
Resources for education suffered significant cuts in the 2008 financial crisis and, although the impact of these has now been minimized, there is still a funding problem that "has not recovered to the real spending levels of years prior to 2009 (it is currently 475 million euros per year under that level)", according to the group of economists.
The report states that if Catalonia had the fiscal sovereignty of the Basque Country, it could spend 2.643 billion euros more on schools than today. Economists estimate that to correct the current shortcomings in the education system (to revert cuts, provide generalized free infant care, high-quality vocational training, improvements in staff ratios in compulsory education, among others), 2.557 billion euros would be needed.
Health
According to the economists, the Covid crisis has highlighted the shortcomings of the health system and how the endemic underfunding of Catalan health affects the quality of its health services. If Catalonia had the fiscal sovereignty of the Basque Country, about 2.3 billion euros more could be allocated than at present to improve the health system.
The improvements would be aimed at reducing waiting lists, improving the quality of primary care through the recruitment of more staff, improving the staffing of medical and nursing professionals and increasing resources in medical research.
Social Services
If Catalonia had fiscal sovereignty, it could allocate more resources to the improvement of social services and increase the budget in this area by approximately 2.4 billion euros per year, so that it would account for 2.28% of GDP. With regard to the funding able to be dedicated to the law on assistance for dependents (LAPAD), it could be increased to 1.19% of GDP, which would reduce the shortfall with respect to the average estimated expenditure in OECD countries of 1.7% of GDP.
In addition, waiting lists could be reduced by more than 50,000 people, the average number of hours of at-home care could be tripled, numbers of care professionals increased by 13,000, and family support as well as other essential services increased to guarantee the welfare of Catalans.
Housing
Currently, public spending on housing represents just 0.08% of GDP in Catalonia, as against 0.50% in the Basque Country and 0.60% in the EU. In total, Catalonia spends 228 million a year on social housing programmes, according to the report.
The group calculates that if Catalonia spent 0.50% of its GDP on social housing, as the Basque Country does, this would amount to an additional 950 million euros a year to invest. This would allow the construction of about 11,300 homes a year and create a public housing stock of about 163,000 homes in ten years.
Suburban Rail
The report states that investments in suburban rail services in Madrid made up 47.8% of the total spending in the 1990-2018 period, while Barcelona received 16.8% of the total during the same period and has improvements pending, such as expansion of the network, of which 29% still consists of single track lines.
The economists believe that 900 million euros would be needed to increase the capacity and safety of the network, renovate rolling stock, complete the La Sagrera station and the airport high-speed line and start studying future works. In this regard, the group states that the Suburban Rail Plan 2020-2030, recently announced by the Spanish government, does not include actions "not started or not finished" nor "any major project that involves a major leap forward" - such as creation of double line tracks or the construction of a third Barcelona urban tunnel.
In conclusion, the study estimates that the additional resources that Catalonia could have with its own tax sovereignty would total 9.107 billion euros, about 1,200 euros per inhabitant, and would thus provide a 36% increase in the resources currently available to the Catalan government from its financing model. In addition, according to Economists for Welfare, Catalonia's pensions would be better protected under a system of fiscal sovereignty.