International Research Seminar

“AUTONOMY STATUTES AND REGIONALIZATION: SOLIDARITY AND EQUALIZATION BETWEEN REGIONS”

(Geneva, (Geneva, July 2013)

powers and exclusive powers of the AC. The State is exclusively competent in certain matters, such as international relations, defence, and administration of justice, customs matters, currency, general finances and state debt. Exclusive powers of an AC may vary among regions, as it depends on their respective statute but, for instance, they are competences related with agriculture, rail and land transport transiting only through an AC or the organisation of the self-government institutions. Finally, the most important responsibilities are the ones shared between the State and the ACs, including education, commerce and consumer policy, banking and insurance, economy and finance or environmental protection, among many others.

In order to be able to exercise their responsibilities, ACs require revenues, which are foreseen in the same Constitution and are subsequently specified in the laws that regulate the financing system of the Spanish regions. There are two very different regional financing systems: the so-called common regime that covers fifteen ACs, and the special foral regime that includes only two ACs (the Basque Country and Navarre).

# 3.1 The Financing System of the Foral Territories

The foral system is based on “historical rights”, as specified in the First Additional Provision of the Constitution, and presents important peculiarities. Moreover, to my knowledge, currently there is no other developed country that employs a similar financing system. A short overview of the functioning of the foral systems reflects two key features: foral territories apply and collect all their taxes, with the exception of the custom and mandatory municipality taxes; the foral ACs transfer to the State an amount, which must reflect the cost of the public services offered by the State to the citizens of the foral territories.

As a consequence of this system, the tax autonomy of the foral territories is very large, especially in what regards the application of direct taxes; these territories establish their own legislation and are also in charge taxes.2 of administrating and controlling these For example, these territories apply their own personal income tax or corporate tax and, are also in charge of all the phases related with their application and control. The national income tax and corporation tax are usually not applied in these regions. In regards with indirect taxes, it is also worthy of mentioning the fact that these territories retain the part of taxes that corresponds to them, although, in this case their tax power is more limited as a result of the harmonised norms of the European Union (EU) regarding value-added tax (VAT) and excises duties. Therefore, they levy the national VAT or excise duties.

The revenues obtained from their taxes allow the foral communities to finance all their designated competences, and to contribute to the financing of all the other services provided by the State to their citizens.

The calculation system employed in determining this contribution, known as quota (cupo) in the Basque Country and payment (aportación) in Navarre, is therefore of crucial importance when determining the net results of the foral system, and even more important when comparing the foral system with the common regime applied to the rest of the ACs. This matter will be emphasised later in this paper, but I already highlight that the final result shows that the foral communities are greatly favoured by their financing system. If these communities were to apply the common regime, their results would be lower given that these territories have an average income higher than the Spanish average. The difference relies in the fact that the foral communities do not participate in the equalisation mechanism of the financing system of the common regime. This allows these communities to maintain their resources, which, without a doubt, is not equitable to the other communities. Indeed, when calculating the Basque quota or the Navarre payment, the equalisation is not taken into account, hence these communities do not participate in the financing of the equalisation grants.