Communities Will Be Able To Spend A Record 150 Billion In 2021

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The Government leaves the regional financing tap open despite the severe blow of the covid-19. Between the payments on account and the positive settlement in 2018, the communities have received more money this year than ever. In 2021 these items will drop slightly, but the State has committed to injecting additional resources to promote the recovery: in addition to the income from the financing system, the autonomies will have other extraordinary transfers from the central Administration. In total, the potential oxygen balloon will be 150,000 million, according to the Treasury.

The Government is committed to offering communities a bigger cushion than ever. In 2021, the regions will be able to receive a whopping 140,400 million euros between the income provided by the regional financing system and additional transfers to which the Treasury has committed. Minister María Jesús Montero has also advanced that the autonomies will be able to access 10,000 million from the European REACT-EU fund, designed to alleviate the socioeconomic impact of the pandemic, despite the fact that the distribution criteria have not yet been decided. The goal: to secure the revenues that sustain services such as education and healthcare, which depend on communities, and to drive recovery after an unprecedented debacle.

But the time will inevitably come to take account. The regional financing system is based on a complex mechanism that must level the inequalities between regions. The autonomies have each year income calculated on the estimated collection of various taxes: those that have been assigned 100%, such as inheritance and donations, and others that are shared, which are 50% of the income tax collection, 50% VAT and 58% special taxes. Based on these resources, which they receive in advance, they build their budgets.

In other words: if the economic forecasts are positive, the communities have more oxygen. Two years later comes the adjustment; If they have received more than expected, the excess financing will be subtracted and vice versa. But the pandemic has partially disrupted this scheme.

In 2020, with a drop in GDP that the Government forecasts of 11.2%, the autonomous regions will continue to receive an unprecedented flow of money, as if there were no crisis. The Executive calculated the amount of payments on account at the beginning of the year, before the devastating impact of the virus materialized, on an estimated growth of 1.6%. And it has decided not to correct it in the face of the mammoth increase in spending and the collapse of income caused by the health crisis.

Until July of this year, the collection for the assigned taxes has sunk more than 25% ; and 12% from state taxes. Even so, between payments on account and the positive settlement of 2018, the regions will receive this year about 116,000 million. In full alarm, the Government also announced an extra fund of 16,000 million. If another 2,211 million in additional spending are taken into account due to this year’s deficit target – 0.2% of GDP – the figure available for 2020 already reaches a record of almost 134,000 million, which next year will rise again. be beaten with the close to 150,000 million.

“Payments on account are normally calculated trying to anticipate what will be collected in the year, and this will not be the case in 2020 or 2021,” says Ángel de la Fuente, researcher at the CSIC and director of Fedea. ” artificially high incomes, as happened in the previous crisis, with the idea that this way the communities will be able to act better. But it is not realistic, “he warns.

In 2021, all the autonomies will receive slightly less from the financing system. Catalonia, Andalusia and Madrid will continue to be the ones that will get the most money in absolute terms, as they are the most populated and richest. Where the flow will decrease the most will be in Asturias and Aragon. But the Treasury has promised to juggle both the spending and revenue side to increase total resources by more than 10%.

One of the announced measures comes from the deficit side, for which the regions will have, in practice, an open bar. After suspending fiscal rules for this year and next, the Treasury has set a deficit reference rate of 2.2% of GDP for the communities , which is not mandatory, compared to 0.2% in 2020. In total, some 26 billion more spending by 2021.

Half of this gap will be assumed by the State through an extraordinary transfer; the remaining 1.1% corresponds to an additional expense that the communities may assume by financing themselves in the markets or through extraordinary liquidity mechanisms.

“The shock is going to be assumed by the State. I think it is dangerous because it gives the impression that it is all free and the incentives to adjust are small ”, adds De la Fuente. “In the current situation we have no choice but to accumulate debt, but we must be aware that this is a loan and that it must be repaid,” he closes.

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