The Balearic Islands will approach the record fiscal deficit of the last decade in 2025

PalmThe Balearic Islands will approach their record fiscal deficit of the last decade in 2025. These are the calculations of the Ministry of Economy and Finance, which forecasts that the difference between what the Islands contribute and what they receive will be €570.4 million. This deficit was only surpassed in 2020, the year of the pandemic, when the balance was €579.5 million. On the eve of the Fiscal and Financial Policy Council (CPFF), where the Spanish government will explain its proposed reform of the financing system, the Ministry warns that the Islands are among the territories most disadvantaged by the current distribution.

The data provided by the department to ARA Baleares is based on the difference between what the Islands receive from the competitiveness fund and what they contribute to the guarantee and sufficiency funds. The years in which this imbalance has been most pronounced, in addition to the two mentioned, were 2019 (when the difference was €543 million), 2021 (€489 million), and 2018 (€468 million). The lowest point in the last decade occurred in 2016, when the Balearic Islands received only €115.7 million less than they contributed. In 2017, the figure was €181 million, and in 2022, €186.5 million, while in 2023 it rose to €213 million and in 2024 to €371.9 million. The calculation is complex and based on multiple variables, but sources within the department explain that the Valencian Community's contribution depends on its fiscal capacity, that is, on what it collects through taxes such as VAT and personal income tax. Due to the large influx of tourists, the VAT collected in the Islands skyrockets. However, the floating population (people who use public services even though they don't live in the islands, such as tourists or seasonal workers) is not taken into account when allocating resources. This is one of the complaints that the First Vice President and Minister of Economy and Finance, Antoni Costa, is expected to raise in his meeting with the First Vice President of the Spanish Government and Minister of Finance, María Jesús Montero. While Pedro Sánchez's government promises that all autonomous communities will benefit from its proposal to reform the system (which has been outdated since 2014), members of the People's Party (PP) and some from the Spanish Socialist Workers' Party (PSOE) (such as the president of Castilla-La Mancha, Emiliano García-Page) are attending the meeting with mistrust. This is mainly because the proposal was forged from bilateral negotiations between representatives of the Spanish government and the Republican Left of Catalonia (ERC).

The Spanish government delegation in Palma confirmed that Sánchez's proposal, if approved, would mean the Balearic Islands would receive an additional €412 million. However, the Treasury will wait to learn the details of the initiative before taking a position. Costa already warned last Friday that it's not a question of figures but rather of understanding the islands' standing relative to the rest of the country. He also warned that the government will reject any proposal that forces the Balearic Islands to raise taxes (the Ministry announced measures against tax dumping by territories governed by the PP), which he defined as a "complete red line." "We will not allow attacks on the Balearic Islands' autonomy to lower taxes," insist sources from the department: "The minister's desire to establish minimum tax rates for taxes such as inheritance and gift taxes is unacceptable." "The Spanish government cannot attempt to impose the reinstatement of this tax and subvert the will expressed by a clear majority of citizens at the polls on May 28, 2023," they argue. "Even less so when the Socialist Party, which calls itself federalist, does nothing but demonstrate its Jacobin centralism." In this sense, they accuse Sánchez of "attacking one of the core principles of the autonomous state."

"Sánchez does not address any of the demands of the Islands."

However, sources within the department now explain that the regional minister will attend the Fiscal and Financial Policy Council (CPFF) with a "constructive spirit, a willingness to negotiate, and gratitude that the Spanish government has finally begun to address the issue of reforming" the financing system. However, they also emphasize that "if the Spanish government does not show a willingness to negotiate tomorrow and must give a 'yes' or 'no' to the proposal, the Balearic Government will clearly vote no," because it does not include "any of the demands" of the Balearic Executive. A key issue for the Prohens Government (unlike in other regions where the People's Party (PP) governs) is the application of the principle of ordinality, which establishes that each autonomous community receives funds from the State in the same order in which it has contributed to the common fund. According to the latest published data In 2021 (according to calculations based on the financing system developed by the Generalitat), in terms of fiscal capacity, the Balearic Islands ranked second (after Madrid), contributing €3,248 per inhabitant to the system. However, after the application of the financing model, the resources received by the Islands dropped them to ninth place: €2,910 per inhabitant. The President of the Government, Marga Prohens, has repeatedly advocated for the application of this principle, although she has also rejected joining forces with Catalonia to request it, as proposed by the Catalan President, Salvador Illa, in a visit to Palma in November pastIn any case, sources at the Catalan Ministry of Economy regret that the proposal now put forward by the Spanish government has "attempted to fit the pieces together because only in Catalonia, de facto", this principle should be applied.

In any case, few details of the Ministry of Finance's proposal are yet known. It has also emerged that the weight given to insularity in the calculation of the adjusted population (which determines the number of inhabitants in each community in relation to its needs and the cost of the services it requires) has been reduced from 0.6 to 0.5. "It is incomprehensible that for the Spanish government, living on islands implies less spending need today than yesterday," the department insists, also criticizing the fact that the variables of the transient population and population growth were not included in the proposal. "For the Islands, these are fundamental to reflecting our current spending needs," they emphasize.