Prior to Covid, we had already become aware that the allocation of tax revenue, supposedly ring-fenced for specific ends, was somewhat more flexible than we had been led to believe. The sustainable tourism tax, aka tourist tax or ecotax, provides one source of revenue for the Balearic government. The purposes for which this revenue is to be spent are enshrined in the legislation that introduced the tax. These purposes were broadened.
Firstly, social housing was added. Justifying this through any link to tourism was tenuous. Opposition parties, business and environmentalists all questioned the appropriateness of this purpose. We then had the proposal that tourist tax revenue be used to help out hoteliers who had suffered because of Thomas Cook. Where was this in the legislation? The government eventually backed down.
Because of Covid, the tax has been exposed as being a general source of revenue that many have always suspected it to be. Certain projects deemed to have been in accordance with the purposes (in law) have had revenue funding withdrawn. The government, its budget in tatters, has needed to draw on what it can.
I don’t entirely blame the government for having made a movement of the goalposts more explicit than it had been in the past. There is an emergency situation, with the tourist tax an example of a revenue pot for addressing this emergency. Because this emergency exists, one which entails massive disruption to budgets and to governmental spending wherewithal, is there a justification - in terms of the general interest - for flexibility, even if this appears to conflict with legislation (unless amended via urgent decree) or with what might be considered to be unjust?
On Tuesday, the Spanish government and the Spanish Federation of Municipalites and Provinces (FEMP) signed an agreement whereby town halls will “voluntarily” lend the government money that these town halls are unable to spend. The cash that town halls have sitting in banks has been accrued from their budget surpluses. Obliged to abide by the austerity regulations set out by the previous (Partido Popular) government, town halls are restricted in terms of their spending.
The Ley Montoro, named after the finance minister who introduced these austerity measures and budgetary stability requirements, was a necessary piece of legislation. While Brussels and IMF pressures undoubtedly contributed to its drafting, the law nevertheless brought town hall spending under control. The profligacy of the past was to come to an end. So, in one respect it wasn’t a bad law, but it didn’t take account of the fruits of far more prudent town hall financial management - the surpluses and unspent cash in banks. At some point, the law had to be amended, as it no longer made sense for town halls to be deprived of revenue.
Fortuitously for the Sánchez administration, it hasn’t got round to the amendment. It is therefore in the lucky situation of seeking to tap into a financial resource, the product of austerity measures, in order to pursue economic reconstruction which it insists will not be characterised by austerity. The government, so the narrative goes, will not be making the same mistakes of the PP in slamming on the spending brakes in response to a crisis. The irony of austerity savings for non-austerity spending is not lost on many.
Under the agreement, town halls in Spain will lend the government up to 15,000 million euros that will come from their savings. A complicated arrangement, it envisages the government making available 5,000 million euros for town hall spending on specific areas, e.g. sustainable mobility. The loans will be repaid within ten years.
Town halls in the Balearics will be in for contributing around 555 million of the total, but mayors have rejected the plan. While nationalists Més and regionalists El Pi have been particularly strong in their condemnation of the scheme, the opposition is across the political board. Antoni Noguera of Més, a former Palma mayor, has described the Ley Montoro as a “fraud” perpetrated against town halls and believes that the agreement with the current finance minister, María Jesús Montero (potentially confusing, I know), is in the same league. Town halls where Més have mayors are going to quit the FEMP and say they will now disobey the spending restrictions of the Ley Montoro.
Unless there is a legal mechanism to compel town halls to hand over their savings, it is difficult to see how this plan has legs. Mayors in the Balearics won’t be alone in taking exception. But out of solidarity with the wider interest, should they be more accepting of the plan? Arguably they should be, but town halls view this scheme for what it is - there is a convenient source of revenue currently not doing anything, so the government would like to get hold of it, while at the same time not having reformed the much despised Ley Montoro.
The government, one feels, is rather underestimating the historical power of the municipality in Spanish public administration, and the town halls are determined to exercise this power.