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Basque leader defends region’s fiscal deal amid claims of special treatment

Source: El Pais - Mon 4th Dec 2017
Basque leader defends region’s fiscal deal amid claims of special treatment

Basque regional premier Iñigo Urkullu has come out strongly in defense of the region’s special fiscal regime, the “Cupo vasco” – a deal in which the Basque government gets to collect its own taxes and return a sum to Madrid for services rendered by the state, rather than the other way around as is the case elsewhere.

In an article published in EL PAÍS, the leader of the wealthy Spanish region has defended the system amid a flurry of criticism from regions around the country over the fact Spanish Congress recently signed off on the latest version of the Basque deal, which is renewed every five years, before the government tackled the key issue of an overhaul of financing for Spain’s other autonomous regions.

The issue is particularly thorny given the question of financing has been a key source of friction in relations between Catalonia and Madrid in recent years. The pro-independence movement has always used fiscal balance data to convey the notion that Catalonia is getting a raw deal by paying in more to state coffers than it receives back.

But Urkullu argues the Basque system, enshrined in the Spanish Constitution, can be used as a reference point for a “new decentralized system” in Spain in which revenues guarantee the future of the welfare state in all of the country’s regions. The Basque leader argues, too, that joint fiscal responsibility could be a cornerstone in achieving more efficient financing of the regions.

The latest update of the Basque financing deal was backed by all the major parties in the Spanish Congress but regional leaders remain highly critical of the ruling Popular Party (PP) over its failure to fulfill promises on the issue of regional financing and of a Basque deal seen by many as an example of preferential treatment.

Meanwhile, the Basque premier maintains the debate could be a positive jumping-off point in the bid to establish a clear and simple system of financing where regions have access to sufficient funds of their own and where tax collection is decentralized to give autonomous regions more room to move on spending.

Urkullu explains that the Basque model, which has its origins in the 19th century, is “a transparent fiscal regime in such a way that if the Basque country wants to spend more on services, it has to come from higher taxes or from cuts to other costs of its own.” He adds he is not in favor of “the reduction of taxes or of the possibility of the Basque Country becoming a fiscal paradise.”

“In reality, the average tax burden in the Basque Country has been higher than in Spain since 1981,” states Urkullu in response to criticism that the region was gifted a special deal after the region’s ruling Basque Nationalist Party (PNV) supported the budget of the minority PP government of Spanish Prime Minister Mariano Rajoy.

Urkullu argues the debate of the financing of Spain’s regions should not be focused on the amount of money paid by the Basque Country via the Cupo vasco “because it is obvious the viability of the model of regional financing does not depend at all” on this amount. Rather it depends on “regions truly having more guaranteed resources from taxes.”

The Basque leader also bats away claims the regional financing deal is opaque, stating it is “an agreed-upon, efficient and administratively transparent system for tax resources, which has full legal backing and enjoys generalized support.” He goes on to note that the Basque Country pays 6.24% of costs for state institutions such as the Spanish military and the royal family, among others – despite the region only being home to 4.67% of the national population.

The 6.24% figure is also above the region’s “relative weight in terms of wealth or [share of Spain’s] gross domestic product, which is 6%,” Urkullu notes.

Both the PNV and the PP have stressed the constitutional context of the Basque financing deal to send a clear message both to Catalonia and the European Union that it is possible for a Spanish region to have a different relationship with the state, and one that is within the framework of the law. The two parties, both in charge of minority governments, argue that calling into question the Basque deal is a case of creating a problem where there is none, and is especially problematic in the context of high tensions in Catalonia over the issue of independence.

Recommended Reading :

* Spanish Economy could lose EU27 Bln over Catalan crisis, warns Bank of Spain

* Spain aims to avoid economic damage to Catalonia through direct rule

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