If independence was just a monetary matter: what will happen in 2017 with Catalan taxes?

Since 2014, the Catalan regional government has been developing its own, forgotten, tax collector. Next year this agency will have to face the challenge of incorporating a huge number of new employees. Whether this tax office succeeds or fails will, to a great extent, depend on the resolution of an independence referendum planned for September 2017.

How do you sustain a recently independent state without aid from your former neighbors? That is the question that Catalan leaders have been asking themselves since the bid for independence from Spain began. They have found an answer in something Catalonia has long possessed but which has been forgotten for decades: a tax collection agency.

The Catalan government wants to develop its regional tax collection agency and empower it to collect the taxes required to sustain a separate state. This is part of the “unplugging” plan being promoted by the current Catalan government, which sees secession from Spain as its primary objective. Catalonia has had its own tax collection agency since 2008, as part of the Catalan statute of autonomy approved in 2006. However, the Catalan Tax Agency (ATC) has only been running at half capacity, mainly because of the lack of political will to develop it to its legal maximum. Now, however, the government wants to ramp it up.

For years Catalan administrations have been worrying about trying to fix a regional financial system that is seen as unfair by many politicians. This supposed “unfairness” comes mainly from the obligation to pay a regular sum to the “solidarity” fund that is intended to reduce inequality between the different autonomous regions of Spain. The problem with this system, according to Maite Vilalta, a public economy lecturer at Universitat de Barcelona, is that it overlaps with a cooperation fund that redistributes resources between regions for a second time. It is a system that ends up with Spain’s richest regions having fewer resources to invest, for instance in health and education, than the poorest.

The current legislative capacity of regional governments only reaches 50% of the lent taxes

This inequality has been wrongly used for political purposes by pro-independence politicians. “Spain robs us” was one of the slogans used by the early pro-independence movement but the message has been softened in recent years, with talk now of a “historic deficit” towards Catalonia instead.

For Maite Vilalta, this kind of view is unacceptable. “Our system is sustained by the principle of solidarity. It’s true that is a disaster but this kind of statement only hurts society. It’s very dangerous,” she explains. Vilalta supports a complete abolition of the cooperation and competitivity funds and the slow transformation the current financial system into a federal one. For her, there are plenty of examples around the world of systems that work better than the Spanish one.

Vilalta is very skeptical about the fate of the financial system of an independent Catalonia: “We are talking about uncertainty,” she says. The current legislative capacity of regional governments only reaches 50% of the lent taxes (that were once a State original power), that can be modified through laws approved by local parliaments.

A two-step implementation process

The Catalan government has established two main periods to develop the Catalan Tax Agency. The first started at the beginning of 2016, when regional premier Carles Puigdemont was elected in January, and will last until the independence referendum, planned for September 2017. In this first phase, the intention of the office led by Puigdemont is to use all the legal powers that Catalonia has as a region of Spain, with no subrogation of central government powers. All remaining steps, which would imply illegal actions inside the Spanish constitutional system, have been postponed until after an eventual, theoretical victory at an independence referendum.

One of the key points that the Catalan office has to face is a need to boost worker numbers at the ATC. The secretary for the Catalan tax agency, Lluís Salvadó, says that in the first months of 2017 the agency will have to double its number of workers, from the 400 that it will have at the end of this year to around 800. The CCOO labor union has already warned about several troubling aspects of this huge increase in workforce, including a lack of transparency in how workers are recruited. “There are selective public examinations,” says Carlos Mateos from CCOO. “They don’t publish the number of passes or failing grades and they directly tell the examinee the result of his examination. The whole process is under their total discretion.”

CCOO also warns about the arrival of 277 property registrars in the ATC. One important function of any tax agency is to pay off the taxes of the citizens. This operation is currently performed in Catalonia by registrars, who are managed by private corporations. The plan of the Catalan government is to incorporate these registrars into public office, as has happened in other regions around Spain. CCOO, however, believes that this will cause tension and stress inside the ATC.

“Something that has not been done in the last 25 years cannot be done in just a few months. How do you tell a 60-year-old-man who is a property registrar working in a settlement office of a mortgage district that he has to go through a public examination process?” says Mateos.

The importance of software and databases

Miguel Ángel Mayo: “Databases are necessary to supervise the current tax”

By April 2017 the Catalan government will have a new software system, Gaudí, to replace the current one, which is seen as inefficient and outdated. Having the right software is crucial to the ability to conduct the executive collection currently carried out by the Spanish tributary administration that allows the ATC to identify and prosecute non-payers.

“The executive part is a key process in every tax collection agency because [without it] it is like the traffic police fining drivers but there being no consequences if they don’t pay,” says Lluís Salvadó. The cost of having the executive collection delegated to the Spanish agency will reach €10m.

Miguel Ángel Mayo, a spokesman for the main union of Spanish tributary workers in Catalonia GESTHA, says that the Catalan government needs, above all, the database of contributors.

“Databases are necessary to supervise the current tax year and all the previous ones, to acknowledge how many contributors they have, which obligations they need to fulfil and how much they have to pay. Without this information it is impossible to start up a new tax collection agency,” he says. And this isn’t simple: Mayo explains that if these databases were printed, they would require an amount of paper "equivalent to three times the size of the Amazon rainforest".

“What’s the point of having a tax collector if you don’t even know the name of the contributors?” asks Rafael Bustos, a constitutional law professor at the Universitat Pompeu Fabra in Barcelona. “The Spanish agency will not lend them any data if they split unilaterally”.

“This worry about the database is fictional. We already have them: Spain gives it to us every year through the Land Registry and the Unified Census of Contributors (CUC)”, says Salvadó. “When we declare independence we will not have what Spain has nowadays but we will be much better off compared to how the state was 10 years ago.”

The second phase: the most uncertain part of the whole process

The second phase of the process will inevitably clash with Spanish constitutional laws. “We’ll have to approve a General Tributary Law, which clashes completely with the Spanish Constitution. From here, we’ll have to create a large amount of laws that will regulate every aspect of the whole tax-collection agency,” says Lluís Salvadó.

The destiny of the process will depend, largely, on the success or failure of the independence referendum in September 2017. An agreement with Madrid on a binding vote would legitimize the independence process but this is hugely unlikely. If the referendum is held unilaterally, the key issue will be whether voter participation is large enough to show clear support for independence.

Come what may, skepticism currently dominates. “The cards are on the table,” Rafael Bustos says. “The Catalan Parliament will continue with its laws no matter what the Spanish Constitutional Court says.”

“How will we be next year? What I know right now is that the Catalan government is not taking enough care of its employees, who will suffer the impact of the following months,” says union leader Carlos Mateos.

The secretary for the tax collector of the Catalan government, Lluís Salvadó, foresees a much clearer scenario. “I hope that in December 2017 we will have won the referendum and we will be developing the second phase of the Catalan Tax Agency,” he says.

What it is clear for the spokesman of the Spanish tributary workers, Miguel Ángel Mayo, is that there will be a “war of attrition.” “In a year from now, the situation will be exactly the same as it is today,” he concludes. “Everything will be just declarations of intent that will decide who is the strongest in the process”.