The director of the Foundation for Applied Economic Research (Fedea), Ángel de la Fuente, has pointed out that the reform of the regional financing system that the Government of Spain intends to implement would allow for a "considerable" improvement in the situation of the regions currently considered to be the worst treated, among which he cited Murcia, Valencian Community, Andalusia, and Castilla-La Mancha.
During his speech at the Economic Forum of Diario Montañés, titled 'The economic situation of Spain: lights, shadows, and external and internal challenges', he indicated that, with this new scheme, the autonomous communities that are currently "above the average", with Cantabria as "a clear example", would be disadvantaged compared to their current position.
"To a certain extent, I don't see it as a bad thing. To fix a distribution where some people are too far down, those who are too far up have to lose in relative terms. Otherwise, there's no way to fix it," he stated.
At the same time, De la Fuente emphasized that the model being proposed "has an important positive aspect", as it introduces greater simplicity compared to the current system.
In this regard, he detailed that the central piece of the scheme is "very reasonable": it is the guarantee fund for fundamental public services, "which does what it needs to do well", by transferring resources from territories with more funding in relation to their needs to communities with less capacity.
However, he warned that on top of that "sensible" core, an architecture has been built that he describes as "a lottery". "In other words, we throw money up in the air and see where it lands, and that lottery, which consists of sufficiency, convergence, cooperation, and competitiveness funds, destroys the logic of the model. We end up with a very high degree of inequality in financing and an arbitrary distribution," he criticized.
De la Fuente added that the reform promoted by the Executive introduces a "very good" change, by initiating the reduction of the relative weight of the "unreasonable" part of the system, compared to the Guarantee Fund, which currently manages around 80% of the resources, while the remaining 20% "is distributed in that manner, and that is what generates the problems".
"When what is distributed in that way becomes smaller, there is a clear improvement in distribution, because we throw less into the air than before. The problem is that what replaces the lottery is something very directed at giving money to whom we want, and that is not a good idea," he stressed.
Impact on Catalonia and Madrid
In relation to the territorial effect of the reform, he indicated that the central government is making "a clear effort" to strengthen Catalonia's financing, so that with the new model "Catalonia would improve considerably."
"A part of this is surely defensible, but another part less so. Catalonia and Madrid are two twin communities in terms of financing and have always been more or less in the same place, they have similar problems and similar income levels. So, here an attempt is made to favor Catalonia a lot, but not Madrid. And this generates shocking things," the head of Fedea clarified.
He particularly attacked the VAT SMEs Fund because, in his opinion, "someone has spent a year racking their brains in the Ministry of Finance to find a variable that allows them to give eight times more money to Catalonia than to Madrid and they have only found this one." And, although he admitted that it "has merit" to have found that mechanism, he considers it a "quite absurd" measure.
For this reason, he reiterated that, if the aim is to increase the resources allocated to the worst-funded autonomies, as well as Catalonia and the Balearic Islands, "which are quite rich communities," and give "a little more" to Madrid, those funds will have to come from other territories, which will imply that the rest of the communities will lose "in relative terms, not in absolute terms."
"Spain's economy is holding up thanks to external factors"
On another matter, Ángel de la Fuente indicated that the Spanish economy is holding up "better" than he himself predicted a few years ago, although he admitted that this favorable evolution is largely explained "thanks to external factors."
He considered that, despite the fact that the international economic context is going through a "very complicated" period, Spain is currently enjoying "tailwinds" that allow it to maintain growth.
In this regard, he highlighted that the country has "strong immigration, great tourism development, good European funds, a good commercial relationship with the USA and is far from Russia."
However, he has warned that the reforms that should have been undertaken to ensure sustained growth, including a thorough fiscal reform, "are not being done." "If we had done what we had to do, we would be calmer about the future," he stressed.
Likewise, he has stated that Spain is currently facing "two major challenges": ensuring the sustainability of public finances and overcoming growing political polarization. At this point, he has lamented that the country's two main parties "are incapable of sitting down to negotiate together."
"The long-term cost will be enormous. They are incapable of talking about anything when deep down they probably have similar opinions. We need politicians to provide solutions to real problems," he concluded.