The Buzines’ interest in entrepreneurship, tax policy and local government is far from being idle as the study of ways to earn and invest money is our daily bread. Watching weak attempts of Ukrainian government to build an effective management system that accommodates regional specifics, we decided to see how it works internationally. Ex-Prime Minister of Canada Kim Campbell (see the Biznes issue No.42 of 20 October 2008, p. 52-54) that leads the International Advisory Board of the Foundation for Effective Governance (Kiev, since 2007; consists of 15 members) recommended to take into account Spain’s experience in developing regional policy.

TheBiznes is set to find out what Ukraine can adopt from Spanish administrative-territorial, pension and other reforms.

 

Thirty years ago after death of Francisco Franco (head of state from 1939 to 1975, the Generalissimos) the country faced the same challenges as Ukraine now: all-out poverty, ineffective centralized bureaucratic machine, separatist movements, and the split society.  

 

There was a very pointed problem of relationships between the center and regions: suppressed during Caudillo’s time, the centrifugal trends in multicultural and polylingual Spain came to the top in an updated and escalated form. Rich Catalonia recalled its glories past during Civil War 1936-1939 and decided to continue fighting for independence. In poor Basque Provinces many young people joined ETA in a hope to find fortune in a sovereign country built in the territories still under Spain’s or France’s control. Galicia and Valencia people also recalled their cultural and household uniqueness. On the other hand, the right-wing conservative camp had no intention to connive separation-minded groups. In fact, all contradictions that had been suppressed but not resolved during Franco era came to the top. Civil war seemed imminent. However, the rational policy of the new government managed to remove contradictions through sophistication of administrative-territorial division of the country, recognition of all “humanitarian” rights of minority groups, and devolution of certain powers to regions (by the way, term “devolution” came from the UK where the reforms were started in the 1990s by Tony Blair’s government).

 

Of course, not all the problems have been settled: the armistice announced by the ETA leaders has not lasted for a long time, and separatists do enjoy certain support among population. Still, today’s situation in Spain is more optimistic than in Ukraine where again and again one can see attempts to create Southeast Ukrainian Autonomous Republic or Rusyn autonomy. One can see other ways to address the problems in the below interview with Mr José López Garrido, a reputed specialist in public and regional administration, local tax and budgetary policies and labor law.

 

- Within the framework of centralized administration system Spain has national government, regional governments vested with executive powers, regional parliaments and local administrations with certain powers. Moreover, Alicante Province, for example, has the Provincial Council that cooperates with local authorities on infrastructure development and other issues. There is also cooperation in tax collection: we collect taxes for 140 City Councils in our Province. Municipal authorities establish local tax rates themselves. Moreover, they receive funds from regional government. As a rule, the funds are allocated for certain purposes: to provide some services, implement an infrastructure project, etc.

 

- The system has absolutely changed. Under Franco’s dictatorship Spain was a centralized state with two levels of power – national and local. 85-87% of budgetary funds went to the center, with only 15% left at the local level. Over past 40 years a new system has been built. It has a new, regional level that receives 35% of all funds. We are quite happy with the system. Since death of General France the country has been developing at impressive rates.

 

- Local administrations collect transport tax, real estate tax, water supply and sewage charges, and tax on economic activities. These are core taxes and account for 50% of a local budget. Municipal authorities can devolve respective powers to a provincial administration. For example, in Alicante, 140 out of 141 cities devolved collection of their taxes to SUMA tax authority. It happens very often that we transfer the funds to them in advance. Municipalities pay us 2.5-3% of total amount collected for our municipal tax collection services. Such scheme makes a life easier for local authorities as it is quite expensive and troublesome for them to collects taxes on their own. Moreover, such agencies operate more efficiently: for example, we manage to collect money from 95-96% of accounts.

 

- About 50% of the state budget belongs to the national government. 35% makes spendings of a regional government during a year. And just 15% of the funds collected are at disposal of local administrations. Over the last years the country sees a wide discussion about financial independence of local authorities. They do a lot as they are closer to people and provide many services that require money. That is why many people demand an increase in finance going to local administrations; however, the discussion is still in progress.

 

- To ensure sufficient financing for all regions is an objective of the national government. Regional governments get some money on account of taxes, but it’s not enough. It is important to ensure that funds coming from the center meet needs of a region. By and large, the scheme works as follows: the government receives money from the richest regions and tries to distribute them evenly among poorest regions. Some regions, for example, Catalonia and Andalusia do not like such redistribution, but we are convinced that we have to support poor regions as well.

 

- The policy should be focused on job creation and fight against unemployment to have welfare in a certain area. Direct subsidies will not work in this case. One should teach people catch a fish rather than give it to them.

 

Our Province has 1.7m citizens, almost 1.2m houses, 1.15m cars and 132,000 companies. Now we in partnership with the largest regional savings bank Caja Mediterraneo are studying the Province and searching for areas that are the most favorable for augmenting the Province’s competitiveness and able to ensure welfare, new jobs and attract foreign investors. We will publish the research results in early December 2008.

 

The point is that not only the workforce but productions facilities move as well: a plant can be moved from Spain to China. The territory is the only thing that can’t be moved. So, one should work to increase its competitiveness and productivity. In Ukraine, Foundation for Effective Governance realizes regional competitiveness project. I was invited as an expert to help develop regional development strategy.

- Crisis brings many problems and negative phenomena. But when the economy is in stagnation, there is an opportunity to reflect on the situation and increase competitiveness. Because of the crisis construction dropped 80% year on year. New car sales went down over 25%. Taxes that we collect were down 2% year on year, from 91% to 89%. That means the crisis has really come. Nevertheless, it’s a good time to search for new opportunities in the country in whole and in our Province in particular. The crisis will be over in one or two years, and we have to think about the future now.

 

 

- There is a difference between social rights and employment conditions. I believe the rights should be observed against all the odds even during the crisis. And employment conditions can be a subject of discussion. Should the productivity fall, the employees will get less money, and should the employees be dissatisfied, the productivity will go down. In this case negotiations are needed. You can discuss what to do: either to make people work after hours or better hire additional staff. By and large, you can agree to worse employment conditions – everything depends on a situation.

 

- They exist in all companies, and I wouldn’t say they are in conflict with the government. As a rule, there is a good cooperation between them.

 

- Over the past 30 years Spain has been gradually expanding powers of regional and local administrations. Some people believe that it results in unreasonable appreciation of government machine. But I think that thanks to decentralization the country has managed to improve quality of services provided to the population. I think the closer a service provider is to the population, the better quality of the services is. For example, local authorities in Spain are responsible for public cleaning, work of police and fire units as well as other services. Regional governments are responsible for healthcare, education, infrastructure, and roads. It is not the sky’s limit but existing system ensures balance between powers of different levels of power. Nevertheless, as I’ve mentioned, the discussion about redistribution of powers is still in progress.

 

- Very often it turns out to be a serious problem. In our region there are two official languages - Spanish and Valencian – and it’s not a problem for us. However, in some other regions Spanish-speaking population disagrees with regional policy, and very often it gives a rise to political problems (Spanish (Castilian) language is official across Spain. Apart from this language some regions have other official languages: Basque language (in Basque Country and Navarra), Catalonian (in Catalonia and Balearic islands), Valencian (in Valencia), Galician (in Galicia), Aranese (in Catalonia). Besides, Asturian and Aragonese are preserved; Arabian, Portuguese and Northern Berber Tarifit are also spoken. So, for many citizens of foreign provinces Spanish is not a native language. – Author).

 

Of course, you know that two regions in Spain – Catalonia and the Basque Country – seek independence. (The Basque nationalism comes from the 19th century; over last 50 years ETA (Euskadi Ta Askatasuna, Basque for "Basque Homeland and Freedom") has committed numerous armed assaults in a fight for independence. Today 60% of Spanish Basques uphold the idea of self-determination, and 25% wants independence from Spain. Rich Catalonia (an autonomous region) also has long traditions of fight for independence: despite certain downturn in separatist sentiments 13.5% of Catalonian people support the idea of independence and 17.5% advocates enlargement of the autonomy.– Author). At the same time, in Catalonia separatist parties get 10% of votes during elections. It means that the most population stands for development of its culture and languages rather than country’s split. In the Basque Country, the separatists enjoy more support (about 50%), but I wouldn’t say there is a strong possibility of the country’s disintegration.

 

- Our decentralized administrative system meets changes occurring in other EU countries. Over many years Brussels financially helped develop and strengthen self-sufficiency of Spanish regions. Now priorities have changed. Spain gets less help because new member states (Eastern Europe) have greater need of it. We understand it: we have had enough time to develop our own infrastructure and now it’s the time for us to help the new members.

 

- As a rule, agreements made between national and regional governments do not depend on any changes of national government. Even if a new government wants to revise relationships with regions, this should be agreed by all regional administrations. Of course, one or another government in Madrid may feel more comfortable with one or another regional administration, but relationships should be built on a long-term basis.

 

- No. There is a common nationwide social insurance system. Our goal was to create an additional fund for provincial officials. The point is that our Province has 67 towns with less than 2,000 citizens. Such small communities can not provide extra pensions to their municipal officials. That is why we have established a pension fund that will make extra payments to municipal officials. It is replenished with monthly contributions of the fund members (25-30 Euros). In addition, local administration may contribute some money.

- In the mid 1980s (at the time of previous economic crisis) social security system did not guarantee a quiet future to its citizens. Since that time the number of population had grown significantly and the economy had been quickly developing, so we had nothing to worry about. Foreigners came to work in our country; they paid taxes here and thus replenished social security funds. So, the problem has not arisen over the last years. Today, at the time of global economic crisis, it is apparently worth thinking of. Although, the latest forecasts say that available funds are enough to pursue our current social policy until 2025. So, we still have time.

 

José López Garrido, Executive Director of SUMA Local Tax Authority in Alicante (Spain)

Born: on 9 June 1961 in Pontevedra (Spain)

Education: law degree from University of Alicante, degree in Political Sciences and Public Administration from Miguel University

Career: 1986-1995 – attorney at law; 1991-1995 – a City Councilor in San Juan, Director of the Finance Department; 1995-1998 – General Director of Interior and Emergency Management Department in the Valencia Regional Government, implemented the “Integral Platform for Emergency Services 112”; 1999-2003 – a Manager of the Provincial consortium of Fire Brigades of Alicante Province, set up the first “Investment Plan” and the first Regional Agreement for Labor Conditions for the employees of the consortiums of the region; 2003-2007 – Vice-President of Alicante Provincial Parliament, Director of the Human Resources and Training Department, developed a number of documents that ensure effectiveness of public service; from 2007 – Executive Director of SUMA Local Tax Authority (a public body whose responsibilities in tax administration and collection are delegated by town councils in a province - Editor) in Alicante and City Councilor in San Juan.