Fiscal decentralization:How to allocate resources and tax-raising                  power                             Septe...
Contents1. Distribution of fiscal power between central   government and autonomous communities (AC).2. Relative situation...
1. Distribution of fiscal power between central   government and ACs. Foral and common models.   Foral system (Basque Cou...
2. Relative situation of Catalonia’s financing system   resources Catalonia’s situation as a result of the financing  sys...
2. Relative situation of Catalonia’s financing system    resources      Financing model results - Year 2010      Indices r...
2. Relative situation of Catalonia’s financing system    resources         Gross Domestic Product and Gross Disposable Hou...
3. Structure of transferred taxes    100% transferred taxes:       Partially transferred-    Inheritance and gift tax   ...
3. Structure of transferred taxes           Non-financial budgeted income - Year 2012           Million euros             ...
4. Normative power over taxes 100% transferred taxes. Common system ACs’ normative power  covers exemptions, tax rates an...
5. Management power over taxes ACs manage only 100% transferred taxes. These are taxes very  related to real estate marke...
5. Management power over taxesEvolution of cash advances and annual liquid resources of financing model subject to liquida...
6. Current situation    Central government disloyalty:       Central government modifies legislation impact        on A...
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Fiscal decentralisation in Spain

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Albert Carreras, Secretary for the Economy and Finance in the Catalan Government, describes the current system of fiscal decentralisation and the reasons why Catalonia is pressing for further fiscal autonomy

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Fiscal decentralisation in Spain

  1. 1. Fiscal decentralization:How to allocate resources and tax-raising power September 2012
  2. 2. Contents1. Distribution of fiscal power between central government and autonomous communities (AC).2. Relative situation of Catalonia’s financing system resources3. Structure of transferred taxes4. Normative power over taxes5. Management power over taxes6. Current situation 2
  3. 3. 1. Distribution of fiscal power between central government and ACs. Foral and common models. Foral system (Basque Country and Navarra).- ACs collect and manage all taxes- With capacity to modify their legislations (specially direct taxes).- Payment of a quota (“Cupo”) in compensation of central government expenses in their territory. General system:- Collection of taxes distributed between central government and ACs- Limited tax power for ACs- Central government transfers financial resources to the ACs in order to cover their spending needs Foral model provides a much higher level or resources than the common model (the Basque Country has 60% higher financial resources per capita than Catalonia). 3
  4. 4. 2. Relative situation of Catalonia’s financing system resources Catalonia’s situation as a result of the financing system is 1,1% below the mean. Regional gap for Catalonia considering relative consumption prices rises up to 8,8% below the mean. In terms of GDP Catalonia is the 4th in the ranking while in terms of Gross Disposable Household Income (considering purchase price parity) is the 8th. 4
  5. 5. 2. Relative situation of Catalonia’s financing system resources Financing model results - Year 2010 Indices relative to arithmetic average (according to the distribution of population) Resources Total homogeneous considering relative Autonomous Fiscal capacity resources consumption prices communities (ACs) Index Ranking Index Ranking Index Ranking Community of Madrid 133,3 1 94,4 12 90,7 15 Balearic Islands 122,9 2 99,8 9 95,3 11 Catalonia 118,5 3 98,9 10 91,2 14 Aragon 114,8 4 113,4 5 118,3 4 Cantabria 114,0 5 122,8 1 127,2 2 Principality of Asturias 105,2 6 112,9 6 113,5 7 La Rioja 102,3 7 117,6 3 108,4 8 Castile & Leon 101,2 8 117,1 4 125,0 3 Valencian Community 93,9 9 93,5 13 93,4 13 Galicia 90,5 10 111,6 7 115,1 6 Castile - La Mancha 86,6 11 104,4 8 117,1 5 Region of Murcia 84,0 12 93,1 14 94,3 12 Andalusia 81,0 13 94,5 11 97,9 10 Extremadura 76,4 14 119,4 2 137,5 1 Canary Islands 42,1 15 88,6 15 104,0 9 ACs average 100,0 100,0 100,0 5
  6. 6. 2. Relative situation of Catalonia’s financing system resources Gross Domestic Product and Gross Disposable Household Income (per capita) Indices relative to arithmetic average (according to the distribution of population) per capita GDP per capita GDHI(1) Autonomous communities (ACs) Index Ranking Index Ranking Community of Madrid 138,9 1 119,0 3 Basque Country 138,8 2 126,9 2 Chartered Community of Navarra 129,1 3 127,1 1 Catalonia 115,4 4 103,7 8 La Rioja 110,5 5 106,4 7 Aragon 108,9 6 111,1 4 Cantabria 103,2 7 108,1 6 Castile & Leon 98,5 8 110,9 5 Principality of Asturias 94,8 9 102,3 9 Balearic Islands 90,0 10 97,4 11 Valencian Community 86,7 11 90,4 14 Galicia 86,4 12 96,4 12 Canary Islands 85,8 13 97,4 10 Region of Murcia 80,8 14 80,8 17 Andalusia 74,5 15 82,0 16 Castile - La Mancha 72,4 16 88,8 15 Extremadura 71,8 17 92,9 13 ACs average 100,0 100,0 Source: Funcas (2010) (1) Considering purchase price parity 6
  7. 7. 3. Structure of transferred taxes 100% transferred taxes:  Partially transferred- Inheritance and gift tax taxes:- Wealth tax - 50% Income tax- Property transfers tax - 50% VAT- Special tax on means of - 58% special taxes transport (hydrocarbons, tobacco- Tax on retail sales of and alcohol) hydrocarbons- Gaming taxes  Equal to 63,1% of non Equal to 11,2% of non financial incomes in financial incomes in Catalan Catalan government’s government’s 2012 budget 2012 budget 7
  8. 8. 3. Structure of transferred taxes Non-financial budgeted income - Year 2012 Million euros Million € % on total Taxes 18.450 75,8 Partially transferred taxes 15.357 63,1 Income tax 1 7.843 32,2 VAT 5.550 22,8 Special taxes2 1.964 8,1 Totally transferred taxes 2.728 11,2 Special tax on energy 311 1,3 Special tax on means of transport 114 0,5 Tax on retail sales of hydrocarbons 390 1,6 Inheritance and gifts tax 198 0,8 Property transfers and DLA 1.221 5,0 Wealth tax 240 1,0 Gaming taxes 254 1,0 Own taxes 365 1,5 Transfers from central government 1.247 5,1 Other 4.636 19,1 Total non-financial income 24.333 100,0 1 Autonomous government s ha re 2 Speci a l ta xes on toba cco, a l cohol a nd hydroca rbons 8
  9. 9. 4. Normative power over taxes 100% transferred taxes. Common system ACs’ normative power covers exemptions, tax rates and bonus. Limited potential collection. Fiscal competency between ACs has pressed tax rates down. Partially transferred taxes. Limited normative power over income tax and no normative power over indirect taxes. Reduced capacity to set configuration aspects of those taxes with more potential collection. Own taxes. (in Catalonia, tax on commercial centers, touristic tax, water sanitation tax) ACs can create own taxes under tight restrictions. Moreover, central government has been lodging appeals to ACs’ attempts to establish new taxes. In practice, it is difficult to design a new tax. 9
  10. 10. 5. Management power over taxes ACs manage only 100% transferred taxes. These are taxes very related to real estate market, therefore its collections has dropped in the last years. Central government manages partially transferred taxes:- Annual cash advances’ system with every AC. Two years later, a final settlement cancels differences → distortions in ACs managing of financial resources.- Cash advances are based on estimations carried out by central government→ lack of transparency → difficulties in budgetary execution → inability to implement own fiscal policy Tax fraud is an additional problem. Mainly carried out by the Spanish Tax Agency, very poor results (black economy represents 24% of the whole Spanish economy). 10
  11. 11. 5. Management power over taxesEvolution of cash advances and annual liquid resources of financing model subject to liquidationMillion € 2002 financing model 2009 financing model 2007 2008 2009 2010 2011 2012 2013Total cash advances (1) 13.984 14.846 17.334 15.772 15.407 14.845 14.930T-2 liquidation 866 1.102 817 - - 917 848Negative liquidations refund -138 -303 -303Annual resources received (2) 14.850 15.947 18.151 15.772 15.269 15.458 15.474Annual financing model liquidation (3) 817 -690 -2.478 917 848Annual total amount (4)=(1)+(3) 14.801 14.155 14.856 16.689 16.254% difference (4)/(2) 5,8 -4,7 -14,3 5,8 5,5Annual variation (M€) -646 701 1.833 -435Annual variation ( %) -4,4 5,0 12,3 -2,6 Final 2008 and 2009 settlements were lower than cash advances (4,6% and 14,3%). Final 2010 settlement was 5,8% higher than previous forecast. 11
  12. 12. 6. Current situation  Central government disloyalty:  Central government modifies legislation impact on ACs expenditure needs without financial compensation.  Increases in tax rates (VAT and special taxes) do not benefit ACs as additional yields remain in the central administration.  Catalan objectives:  Catalan government aspires to collect and manage all taxes in order to have the capacity to decide its own fiscal policy. 12

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