Presentacin de PowerPoint

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FINANCING SUB-CENTRAL GOVERNMENTS EXPLAINNING
THE BALANCE BETWEEN TAXES AND GRANTS Tax
Decentralisation Challenges for SCG
Autonomy SPAIN
Vienna, 29-30 May 2008
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Tax Decentralisation Challenges for SCG
AutonomySPAIN

• Spain has three levels of government
• Central Government (CG).
• Regional Governments or Autonomous Communities
  (AC).
• Local Governments around 8.100 municipalities.
• The decentralization process that began with 1978
  Constitution has made Spain one of the most
  decentralized countries in the world.
• This devolution and decentralization process has
  affected mainly the new 17 autonomous
  communities 15 common regime regions and 2
  foral regime regions.
• Legal framework
• Financing Law for autonomous communities, Ley
  Orgánica 8/1980, (LOFCA).
• Law 21/2001, that establishes the financing
  arrangement for common regime regions.

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Main features of the 2002 financing arrangement

• Regional spending needs were set as the sum of
  revenues from taxes and central governments
  grants autonomous communities received
  collectively in the base year 1999. 1
• The overall spending needs were distributed
  across the regions according to objective
  criteria. 2
• For each region, transfers from, or contributions
  to the central government were calculated as the
  difference between spending needs and its revenue
  raising capacity. Two regions have revenue
  raising capacities exceeding their financing
  needs and contribute to the Sufficiency Fund
  (equalisation scheme). 1.
• CG Transfers are adjusted every year in line with
  the rise in central government tax revenues. A
  slight increase in the proportion of tax revenues
  can be observed. 3
• The financial autonomy of AC is increased. 4

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Main features of the 2002 financing arrangement
COLLECTED BY AC
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Main features of the 2002 financing arrangement
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Autonomous Communities financial resourcesTax
and Grants revenues
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Autonomous Communities financial
resources Categories
Resources of the financing system
Own Taxes
Taxes totally ceded
Sufficiency Fund
Taxes partially shared
Personal income tax (33)
Value added tax (35)
Excise taxes (40) alcohol, mineral oil and
tobacco
Wealth tax
Tax on electricity
Inheritance and gift tax


Tax on wealth transfers and legal acts
Tax on retail sales of oiI products


Tax on gambling
Health Guarantee

Tax on certain means of transport
Fees
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Autonomous Communities financial resources Year
2006
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Tax autonomy
10
Tax autonomy
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Tax autonomy
12
Normative powers
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Normative powers
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Use of discretionary powers

• Heterogeneous
• There is a tendency to soften tax pressure in
  most of ceded taxes, mainly direct taxes (ISD),
  and to increase in indirect taxes.
• In direct taxes, AC have tried to make visible
  their measures, though the revenue impact was
  tiny. (IRPF 121 M.. in 2006)
• Rises in ITP-AJD rates had the highest revenue
  impact, but were produced primarily due to the
  increase in the reduced VAT rate.
• Many normative powers have not been exploited by
  almost any AC.

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Use of discretionary powers

• Possible reasons to explain the lack of use of
  discretionary powers by AC
• Tax competition with other AC.
• Impossibility to regulate any other element but
  the tax rate and exemptions.
• Political consequences of the increase in tax
  pressure.
• Lack of transparency or visibility of the
  competences devolved to AC.
• Lack of adequate information and assessment
  systems?

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Development of own taxes

• Heterogeneous
• More than half of own taxes are environmentally
  related taxes, such as taxes on water,
  emissions, waste and installations or activities
  that may affect harmfully the environment.
• 2006
• Its revenue impact is little in 2006 It was only
  0,98 of the resources of financing system, 1.078
  M.

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Conclusions

• The use of normative powers as a way to obtain
  financial resources has been limited and its
  visibility very low.
• The high degree of fiscal dependency may
  discourage AC in order to increase their
  accountability AC are free in order to determine
  their spending policies and needs but, as regards
  their financing needs, their decisions only
  affect 4 out of 10 euros they collect.
• The systems lacks of transparency as regards the
  assignment of financial resources and the
  delimitation of competences of each level of
  government.
• The way of measuring fiscal capacity uses
  estimates of average or normative revenue of
  ceded taxes that may not be adequate to know AC
  real fiscal capacity.

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Issues for discussion

• How can the low use of normative powers by SCG be
  improved? Is there any difference between direct
  or indirect taxes?
• Transfers from CG, should they be linked with the
  use of fiscal capacity by SCG or with certain
  public services? How could fiscal capacity and
  fiscal effort of SCG be measured?
• How could transparency and accountability of AC
  be improved for the citizens?
• How can transfers be designed so as SCG can
  provide an adequate level of public services and
  mean no disincentive to the SCG use of
  discretionary powers?