The Financial System of the Southern Basque Country

by Jule Goikoetxea. 

In a series of articles we will describe the institutional system of the southern Basque Country. In this first one, we shall start by explaining the financial structure and relationship amongst the southern Basque Territories as well as their agreement with the Spanish central administration.

Following Franco’s death in 1975, Spain entered a period of transition towards democracy that entailed an open-ended process of asymmetric decentralization under which the southern Basque Country was divided into the Autonomous Community of the Basque Country and the Foral Community of Navarre. Spain is a unitary but a decentralized state divided into 17 Autonomous Communities, and while the Foral Community of Navarre comprises one territory, the Autonomous Community of the Basque Country comprises three: Araba, Bizkaia and Gipuzkoa.

Basque Finance Council Meeting

Basque Finance Council Meeting | Photo: EL DIARIO VASCO

The financial relationship of these two Autonomous Communities with the Spanish central administration is de jure more or less the same, but the internal functioning of these Communities is different because the Autonomous Community of the Basque Country, unlike the Foral Community of Navarre, is formed by 3 territories related to one another through a federal arrangement.

The Basque Treasuries are outside the Spanish financial regime. There are thus five Treasuries in Spain (hence, 32 in the European Union notwithstanding that there are 28 member states), the Spanish Treasury plus the four Basque Treasuries, one per territory, and it is the so called Economic Agreement which regulates the financial relations among them. The Economic Agreement is a bilateral contract between the Spanish Treasury and the Basque Treasuries and is based on the obligation by Basque Treasuries to pay a certain amount to the Spanish Treasury, which is referred to as the Basque tax contribution or ‘cupo’. The quantity to be paid is different depending on whether we speak of the Foral Community of Navarre or of the Autonomous Community of the Basque Country. Since this agreement does not work properly in Navarre (for diverse economic and, above all, political reasons) we will explain very briefly how this financial system works in the Autonomous Community of the Basque Country.

The Economic Agreement endows the Historic Territories with powers to formulate, regulate and collect around 92% of all taxes. After liquidation, each Territorial Government must deliver a part of the revenues collected to the Basque Government who must, in turn, deliver a quantity to the Spanish Treasury.

To decide about the money that the Territories (Araba, Bizakaia and Gipuzkoa) must deliver to the Basque Government an entity called the Basque Finance Council exists where representatives of the three Territories (one per Territory) and of the Basque Government agree on the transfer of money by the former to the latter on the basis of specific projects. With regard to the second, transfer from the Basque Government to the Spanish Treasury the taxation coefficient currently in use for this Community is 6.24%, i.e. the Basque Government pays 6.24% of the general expenses of the Spanish state in areas for which it has not assumed responsibility (the army, foreign diplomacy, etc.).

Thus, the Territory of Gipuzkoa, for instance, distributes its budget (around 4 billion euros over recent years) as follows: around 70% is for the Basque Government (including here the 6.24% ‘cupo’ for the Spanish central state); a further 10% is for the municipalities; and the remaining 19% (excluding financial adjustments: 0.8%) is for the Territorial Government.

This system of distribution whereby the lower level of government (the Territorial Governments) gives to the higher level of government (the Basque Government) almost all the money it has available, makes subsidiarity and decentralization the core of the political structure of the Autonomous Community of the Basque Country, which is reflected not only in its financial structure but, most crucially, in its political structure, as we will have the chance to see in the next series of articles.

Jule Goikoetxea Jule Goikoetxea is a Lecturer of Political Science
@julegoi
http://julegoikoetxea.wordpress.com/ http://www.naiz.info/eu/blogs/temati-ka

2 Comments on "The Financial System of the Southern Basque Country"

  1. Iñigo Azurmendi Garitano | October 15, 2013 at 21:34 | Reply

    Extraordinary article this one related to the Basque financial system! Well and clearly described how the rough tax procedure works between the Basque and Central Government. Perhaps, in terms of economics, I missed out some mention associated with the positive impact that this system has on our economy and social welfare. But great article anyway!

  2. Superb article !

    It´s a great introduction to the Basque financial regime, an economic tool that is not that well known abroad.

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