What is not measured quickly becomes invisible. The invisible is lost. And what is lost cannot be acted upon or repaired (United Nations).
The investiture agreement between the PSC and the ERC includes important changes in tax matters. The main change concerns a general revision of the financing system, through which the Generalitat would collect all taxes and then pay two contributions to the State: one to compensate for the services it provides and another to contribute to territorial solidarity.
As many had anticipated, if this proposal were developed, a substantial change would occur in the regional financing system. However, despite its importance, this is not the main issue to be addressed in this article, and I ask the reader to simply imagine that the financial balance between Catalonia and the rest of Spain remains the same. This allows us to focus attention on the other great challenge posed by the agreement: the total decentralization of fiscal management and its effects on the information available.
To understand the importance of this change, it is worth recalling for a moment the current balance between the State and the Autonomous Communities in terms of collection and management. The attached table includes seven of the main taxes in our country, detailing the collection, management and regulation capacity, understanding the latter in the most basic sense of establishing the level of tax pressure.
As can be seen, there are two clear trends. On the one hand, if we stick to the magnitudes, the current tax system gives undisputed preeminence to the National Agency for Tax Administration (AEAT) as the tax manager. In total, the collection managed by the organization represents approximately 20.5% of the GDP, compared to approximately 1.2% managed directly by the autonomous communities. The existing Catalan Tax Administration administers these taxes as well as its own taxes, like any other region. The Basque and Navarrese provincial domains assume full powers over their territories.
With management comes great power. The most obvious is control of the collection, since in any subsequent negotiation, whoever has “the key to the box” starts from a position of greater strength. Since everyone is aware of the implications of this condition, there is no need to reiterate this argument either.
But management also means knowing first-hand how taxes work (who pays and how much) and potentially making this information known in an exercise in transparency. In our country, it goes without saying that the Treasury has the best data on individuals and companies. This allows researchers and journalists to rely on this information for their work, or also political parties to use these archives to tackle old and new problems.
As an example, we can cite the improvement of the management of the Minimum Living Income thanks to the use of information from the Treasury. Also the recent appearance of a database with the rental prices of housing collected by the Tax Agency and which allowed the National Institute of Statistics (INE) to develop an index of rental housing prices. The housing law also provides that a new index will become the reference for the annual renewal of contracts in 2025.
unwritten rule
The benefits of a modern Hacienda, however, should not be taken for granted. On the contrary, it is the result of an unwritten rule of the current system once its modernization began to occur as part of the transition to democracy.
Since 1977, the Treasury has sought to enhance the flow of information on the main taxes as a counterpart to the increased tax effort required of citizens. This was first evident in the statistics on personal income tax, the frequency of which was included in the first tax regulation. The same logic was then applied to corporate tax and, finally, to VAT.
Without this information, which determines not only the accumulated collection, but also the tax base (personal income in income tax or corporate profits in companies), one would never really know what the collection potential of a tax is. Transparency and detail in tax collection are a decisive aspect, because they also make it possible to quantify the impact of deductions and exemptions, which often has just as important an effect as the choice of tax rate.
Finally, if treated carefully, tax statistics and other macroeconomic aggregates provide a good approximation of the extent of tax fraud. For these reasons, the State and all social agents must enhance the current statistical apparatus.
The opposite of this situation is also observed in our country with two experiences of decentralization of tax management. The first and most obvious concerns real estate transfer taxes (ITP-AJD) and inheritance taxes (ISD) that the autonomous communities manage in their respective territories.
The way in which these taxes were transferred in 1997 only forced the regions to make known the extent of the collection and nothing else. In practice, some administrations, such as the Junta de Andalucía, have the merit of providing more detailed information, but many others live almost in a pre-statistical era.
This produces shocking situations, as in the case of inheritance tax, in which it is not known how many people pay it, the value of inheritances (or gifts) and their distribution. Consequently, all calculations on the loss of income due to the multiple exemptions granted in recent decades are based on a very weak basis. This lack of information is all the more surprising given that more than a century ago, in 1900, the Ministry of Finance was able to publish more complete statistics on this tax despite minimal technical means compared to today. It is therefore not a question of means, but of political will.
The reader may then ask himself two questions. The first and most obvious is: why are more and better data not published? Mainly because the public opinion of each Autonomous Community ignores the value of this information, which leads me to highlight the quote that opens this article: What is not measured quickly becomes invisible. The tax system becomes more difficult for citizens to judge, so much so that it is almost impossible for a taxpayer to know whether he pays a lot or a little compared to the rest of the citizens of the other Autonomous Communities.
A second question that arises from this situation is: why does the State not facilitate the coordination or partial recovery of information? The answer is that this would force all the Autonomous Communities to agree, an impossible or very costly mission for any government.
The other paradigmatic case of decentralization occurs in the provincial territories, the Basque Country and Navarre, which enjoy total independence to establish regulations and collect taxes in their respective territories. Historically, at least until 1978, the economic agreement was based on the deliberate search for opacity on the part of the provincial treasuries, since those responsible believed that the less information available, the easier it would be to negotiate the renewal of the quota with the State.
This situation has only begun to change in recent decades, partly because the formula for calculating the quota has been established on fixed principles since 2002, and partly because of transparency towards its own citizens. But even today, there is an abysmal statistical gap between the provincial treasuries and the AEAT. This can be verified by seeing the scarcity of annual reports, statistical summaries and also the absence of microdata in the provincial treasuries. This obscurantism does not facilitate, but rather makes difficult, the correct measurement of quota flows and, ultimately, cancels the possibility of verifying the scope of public policies.
Towards a federal Treasury?
If we go back to the literal text of the ERC-PSC agreement, we could think that the Catalan Tax Agency (ATC) will end up with a management power similar to that of the Basque and Navarrese provincial treasuries. However, the agreement provides for a progressive perspective that would give the ATC the possibility of first managing personal income tax and VAT for small businesses in the 2025 financial year.
If we really want to move in this direction, we can be sure that a long negotiation process will begin, in which all the parties represented in the Cortes will participate. Indeed, in a hypothetical reform of the regional financing law, it is not unreasonable to think that other communities would also claim the management of taxes for themselves, whatever the financing formulas. If progress were made in this direction, it would lead to the strengthening of regional treasuries and the weakening of the Public Treasury.
The fundamental point of this article is not to reject this scenario, because if we compare it with other countries, there are as many management models as one can imagine. The emphasis must be placed on the need to preserve, at a minimum, the current flow of information as a guarantee of a modern and transparent Treasury with its citizens.
This would require that, if progress were indeed made in this direction, there would have to be a coordinating body which, in the spirit of the federal union, would ensure the continuation of this flow of information and, in addition, would make public the assumptions underlying the transfer between the autonomous and state domains.
There would be no obstacle to the integration of the Basque and Navarrese domains into this system, since the current economic agreement does not exclude this possibility. The opposite scenario would be equivalent to an uncontrolled explosion of the current system that would undoubtedly increase the feeling of discontent among citizens.
