FISCAL CONSOLIDATION AND FISCAL DECENTRALISATION IN...

NOMBRE DEL DEPARTAMENTO 1

FISCAL CONSOLIDATION AND FISCAL DECENTRALISATION IN SPAIN

DURING THE CRISIS AND BEYOND

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. 188-216 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.

Departamento de Coyuntura y Previsión Económica

NOMBRE DEL DEPARTAMENTO

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

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




3

Spain is a highly, fiscally decentralized country (successive waves)


8

10

12

14

16

18

20

22

24

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Sub-national governments

Central government (excl Social Security)

Public spending (excluding internal transfers) as a percent of GDP (National Accounts)

CENTRAL; 38,323

SOCIAL SECURITY;

4,594

REGIONS; 126,885

LOCAL; 41,644

GENERAL GOVERNMENT CONSUMPTION IN 2012 (bn)

Additional material



4

Spain is a highly, fiscally decentralized country (successive waves)


Revenue decentralization (“ordinary-regime” regions)

1992-1996 1997-2000 2002-2008 2009-2014

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



5

Fiscal autonomy of subnational governments is relatively high




6

The crisis hit sub-national govnts’ fiscal positions

Public debt increased sharply... due to revenue shortfalls…

and persistent spending dynamics


0

4

8

12

16

20

35

45

55

65

75

85

90 92 94 96 98 00 02 04 06 08 10 12

General Government (left axis)

Regional Governments (right axis)

Percent of GDP

0.0

0.5

1.0

1.5

2.0

2.5

06 07 08 09 10 11 12

Tax on property transfers and documented legal acts, % GDP

18

20

22

24

06 07 08 09 10 11 12

Sub-national spending (excl. internal transfers), % GDP (NA)



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 center-regions financial arragements)

On the spending side: adjustment mainly in consumption expenditure

(education and health) and public investment


-10

-8

-6

-4

-2

0

2

4

6

8

2009 2010 2011 2012 2013

Sub-national government employees (LFS)

Central government employees (LFS, excl. SS)

% growth

-20

-15

-10

-5

0

5

10

2009 2010 2011 2012 2013

Pharmaceutical spending (nominal)

% growth

-80

-60

-40

-20

0

20

2009 2010 2011 2012 2013

Sub-national government investment

% growth



8

Nevertheless, despite the fiscal policy reaction, exposure to markets/fiscal vulnerabilities increased (financing needs)…


AND

CLM

CAT

VAL

MAD-5

5

15

25

35

45

55

65

-1.5 0.5 2.5 4.5 6.5 8.5 10.5

Sh

ort

te

rm /

Lo

ng

te

rm d

eb

t

Financing needs as percent of GDP

Total debt as a percent of GDP in 2007

AND

CLM

CAT

VAL

MAD

-5

5

15

25

35

45

55

65

-1.5 0.5 2.5 4.5 6.5 8.5 10.5

Sh

ort

te

rm /

Lo

ng

te

rm d

eb

t





9

Short-term reaction (beyond fiscal restraint): improvement in institutions (governance) and financial assistance Governance / fiscal rules

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




10

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)


AND

CLM

CAT

VAL

MAD

-10

10

30

50

70

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

Ce

ntr

al G

ov. s

up

po

rt f

un

ds

, %

of

de

bt





11

Policy actions with a medium-term bearing and open issues

Policy actions

Law on the control of commercial debt

Public sector expenditure review, including specific actions (CORA)

Reform of the Local administration




12

Policy actions with a medium-term bearing and open issues

Open issues

How to deal with heterogeneity

Heterogeneous fiscal policy reactions and adjustment?

Heterogeneous preferences of electorates as regards public spending?

Heterogeneous business cycles?

How to advance in fiscal co-responsibility:

Revision of financial arrangements between the central and the sub-

national governments


ADDITIONAL MATERIAL

ADDITIONAL MATERIAL

NOMBRE DEL DEPARTAMENTO 13

FISCAL CONSOLIDATION AND FISCAL DECENTRALISATION IN

SPAIN DURING THE CRISIS AND BEYOND

THANKS FOR YOUR ATTENTION




14

Additional slide: heterogeneity in business cycles


Back to main document



15

Additional slide: heterogeneity in public deficit targets?



-0.50

0.00

0.50

1.00

1.50

2.00

2.50

-0.50 0.50 1.50 2.50

De

fic

it J

an

ua

ry-N

ove

mb

er

2013

Deficit target for 2013

Andalucía

Islas Baleares

Cataluña

Murcia

Valencia

Comunidades sin PEF



16

Additional slide: heterogeneity in public deficit targets?





17

Additional slide: system of financial arrangements central gov. – regional govs.



Sistema de

financiación

anterior

Aportaciones

adicionales del

Estado Nuevo sistema de financiación de CCAA

Fondo Sanidad

Fondo Sanidad

25% Impuestos

cedidos

normativos

Nuevas

aportaciones

Estado de

Bienestar

25% Impuestos

cedidos

normativos

Fondos de

Convergencia

Fondos de

Convergencia

Fondos de

Convergencia

Fondo de

Garantía

Fondo de

Suficiencia Global

Impuestos

cedidos

normativos

Fondo de

Suficiencia Global

Nuevas

aportaciones

Estado de

Bienestar

Fondo de

Garantía

Fondo de

suficiencia

75% Impuestos

cedidos

normativos

Criterio de reparto: población ajustada

Según criterios de reparto

Garantía de statu quo inicial



18

Additional slide: decentralization of spending in 2012



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Imp. sobre la producción y las importaciones

Imp. corrientes sobre la renta y

el patrimonio

Subvenciones Remuneración de asalariados

Consumos intermedios

Transferencias en especie

Formación bruta capital

(P5=P51+P52)CCAA CCLL

AC SS

FISCAL CONSOLIDATION AND FISCAL DECENTRALISATION IN...

Documents

Transcript of FISCAL CONSOLIDATION AND FISCAL DECENTRALISATION IN...