FISCAL CONSOLIDATION AND FISCAL DECENTRALISATION IN SPAIN DURING THE CRISIS AND BEYOND

Transcription

1 Presentation based on some work done at the Banco de España: Pérez, Javier J. and Rocío Prieto (2014), The structure of sub-national public debt: liquidity vs credit risks, Banco de España Working Paper, forthcoming. Hernández de Cos, Pablo and Javier J. Pérez (2013), Sub-national public debt in Spain: political economy issues and the role of fiscal rules and decentralization, pp in Eur. Comission Econ. Papers, 501. Onrubia, Jorge and Javier J. Pérez (2014), La distribución de objetivos de déficit público nacional: un problema de reparto horizontal o vertical?, mimeo. Martí, Francisco (2011), Descentralización y autonomía de las administraciones territoriales, internal note, Banco de España. 1

2 Overview Spain has become a highly fiscally decentralized country since the late 1970s, and in particular since 1995/2002 (regional heterogeneity) Sub-national spending amounts to some 70% of the total (2012, excl. SS). Regions & municipalities had to bear a significant part of consolidation plans Spain is the sixth sub-sovereign bond issuer world-wide, and regions were perceived by markets since mid-2010 as a source of risk for the sovereign A number of policy actions have been implemented since 2011, beyond short-term fiscal retrenchment plans, including significant changes in national fiscal rules, transparency, broad-ranging national liquidity/support funds, and reforms that target structural spending 2

3 24 Public spending (excluding internal transfers) as a percent of GDP (National Accounts) Spain is a highly, fiscally decentralized country (successive waves) 22 GENERAL GOVERNMENT CONSUMPTION IN 2012 (bn) LOCAL; 41,644 CENTRAL; 38,323 SOCIAL SECURITY; 4, REGIONS; 126, Sub-national governments Central government (excl Social Security) Additional material 3

4 Spain is a highly, fiscally decentralized country (successive waves) Revenue decentralization ( ordinary-regime regions) INCOME TAX 15% 15% (up to 30%, some regulatory power) 33% (regulatory power) 50% (regulatory power) VAT 0% 0% 35% 50% EXCISE DUTIES 0% 0% 40% 58% on manufactured production of alcohol, tobacco and hydrocarbons CEDED TAXES wealth tax, inheritance and gift tax, tax on property transfers and documented legal acts, tax on gaming (changes in regulatory powers over these sources of revenues over time), as of 2002 tax on electricity, tax on retail hydrocarbon sales, excise duty on specific means of transport TRANSFERS (GUARANTEES) TO CLOSE THE SYSTEM Additional material 4

5 Fiscal autonomy of subnational governments is relatively high 5

6 The crisis hit sub-national govnts fiscal positions Public debt increased sharply... Percent of GDP due to revenue shortfalls 2.5 Tax on property transfers and documented legal acts, % GDP and persistent spending dynamics 24 Sub-national spending (excl. internal transfers), % GDP (NA) General Government (left axis) Regional Governments (right axis)

7 Sub-national governments had to adjust, within the fiscal consolidation of Spain On the revenue side, some margin to increase ceded taxes and the income tax tranche: some historical evidence points to the fact that the regulatory power was not used to a large extent in the past (frequent changes in centerregions financial arragements) On the spending side: adjustment mainly in consumption expenditure (education and health) and public investment % growth Sub-national government employees (LFS) Central government employees (LFS, excl. SS) % growth Pharmaceutical spending (nominal) % growth Sub-national government investment 7

8 Short term / Long term debt Short term / Long term debt FISCAL CONSOLIDATION AND FISCAL DECENTRALISATION IN SPAIN Nevertheless, despite the fiscal policy reaction, exposure to markets/fiscal vulnerabilities increased (financing needs) Total debt as a percent of GDP in Total debt as a percent of GDP in 2011 VAL CAT AND VAL 25 CLM 15 CAT 15 AND 5 CLM 5 MAD -1.5 MAD Financing needs as percent of GDP Financing needs as percent of GDP 8

9 Governance / fiscal rules Short-term reaction (beyond fiscal restraint): improvement in institutions (governance) and financial assistance Budgetary sustainability Law (develops Constitutional reform of end- 2011): supervisory rules for sub-national govnt s In place since mid-2012 Detailed pre-emptive and corrective actions ( Economic and Financial Plans of CCAA ) Transitory period till 2020 Transparency: quarterly/monthly NA fiscal data for sub-national govnts Independent Fiscal Responsibility Authority (yet to be operative) To reinforce surveillance on all public administrations, and in particular sub-national ones 9

10 Central Gov. support funds, % of debt FISCAL CONSOLIDATION AND FISCAL DECENTRALISATION IN SPAIN Short-term reaction (beyond fiscal restraint): improvement in institutions (governance) and financial assistance Financial assistance to cope with two main problems: (i) mounting levels of commercial debt ; (ii) liquidity-raising problems (market access) 70 Total debt as a percent of GDP in 2012 MAD 50 CAT 30 AND 10 CLM VAL Financing needs as percent of GDP 10

11 Policy actions Policy actions with a medium-term bearing and open issues Law on the control of commercial debt Public sector expenditure review, including specific actions (CORA) Reform of the Local administration 11

12 Open issues Policy actions with a medium-term bearing and open issues How to deal with heterogeneity Heterogeneous fiscal policy reactions and adjustment? ADDITIONAL MATERIAL Heterogeneous preferences of electorates as regards public spending? Heterogeneous business cycles? ADDITIONAL MATERIAL How to advance in fiscal co-responsibility: Revision of financial arrangements between the central and the subnational governments 12

13 FISCAL CONSOLIDATION AND FISCAL DECENTRALISATION IN SPAIN THANKS FOR YOUR ATTENTION 13

14 Additional slide: heterogeneity in business cycles Departamento Back de Coyuntura to main document 14

15 Deficit January-November 2013 FISCAL CONSOLIDATION AND FISCAL DECENTRALISATION IN SPAIN Additional slide: heterogeneity in public deficit targets? Andalucía Islas Baleares Cataluña Murcia 0.50 Valencia Deficit target for 2013 Comunidades sin PEF Departamento Back de Coyuntura to main document 15

16 Additional slide: heterogeneity in public deficit targets? Departamento Back de Coyuntura to main document 16

17 Sistema de financiación anterior Aportaciones adicionales del Estado Nuevo sistema de financiación de CCAA Additional slide: system of financial arrangements central gov. regional govs. Impuestos cedidos normativos 25% Impuestos cedidos normativos 25% Impuestos cedidos normativos 75% Impuestos cedidos normativos Fondo de suficiencia Fondo Sanidad Fondo de Garantía Criterio de reparto: población ajustada Fondo de Garantía Nuevas aportaciones Estado de Bienestar Fondo Sanidad Nuevas aportaciones Estado de Bienestar Fondo de Suficiencia Global Garantía de statu quo inicial Fondo de Suficiencia Global Fondos de Convergencia Fondos de Convergencia Según criterios de reparto Fondos de Convergencia Departamento Back de Coyuntura to main document 17

18 100% Additional slide: decentralization of spending in % 80% 70% 60% 50% 40% 30% 20% 10% 0% Imp. sobre la producción y las importaciones Imp. corrientes sobre la renta y el patrimonio Subvenciones CCAA AC Remuneración de asalariados CCLL SS Consumos intermedios Transferencias en especie Formación bruta capital (P5=P51+P52) Departamento Back de Coyuntura to main document 18