Basque Economic Agreement

The Economic Agreement is a juridical instrument that regulates the taxation and financial relations between the General Administration of the State of Spain and the Autonomous Community of the Basque Country.

History

First Stage: 1878-1937

The origin of the Economic Agreement lay in the need to reach agreement on some type of system by which the Vascongada provinces (Álava, Guipúzkoa and Biscay) would pay taxes to the State following the approval of the Law of July 21st 1876, which obliged the citizens of these provinces to pay taxes according to their means, in the same way as other Spaniards.

The process of discussing this obligation was a highly complex one, due to these provinces having their own Fueros, or territorial statutes, and their own bodies for provincial representation (Juntas Generales – the Representative Assemblies) which regulated their own internal tax systems, which derived from their Fueros.

Following fruitless contacts between Antonio Cánovas del Castillo, the President of the Government, and the representatives of the Provincial Councils (Diputaciones Forales - the provincial governments), the former dissolved the Juntas Generales and the Provincial Council of Biscay. Between the end of November and early December 1877, he did the same with the Provincial Councils of Álava and Guipúzkoa.

However, the immediate problem was how to collect taxes in provinces where there had been only scarce activity by the State Treasury (since 1841 only the collection of Customs duties had been of any importance). This led to Antonio Cánovas negotiating with the Government-appointed Provincial Councils over the form in which these provinces would enter the “Economic Agreement” of the Nation.

Between December 1877 and February 1878 the representatives of the Provincial Councils and the Government attempted to reach an agreement. This took the form of a first Decree, dated February 28th 1878, by which the provinces would pay taxes to the State in a specific manner for a transitional period of eight years. The Provincial Councils were to be responsible for collecting the agreed taxes (impuestos concertados); they would then pay the State Treasury the equivalent of what the latter calculated it could collect, while employing for their own expenses the difference between the sum collected and the sum paid to the State Treasury through the Quota.

One important aspect was that the State would not be involved in the collection of the agreed taxes, leaving it to the Provincial Councils to decide whether or not to collect them. The Provincial Councils could collect those taxes, or continue employing their own tax system, which was essentially based on taxes on consumption (surcharges on the prices of food products, fuels, alcoholic drinks, etc.).

This agreement, which should have ended in 1886 given its provisional character, has been renewed continually up until the most recent agreement in the year 2007.

After the Decree of February 28th 1878, the Economic Agreement was renewed in 1886 since the Provincial Councils had promptly paid the Quota to the State Treasury without any problem; the Provincial Councils had kept many of the powers deriving from the earlier Fueros, and had their own means for tax collection. The Treasury Ministry did not collect the agreed taxes, but State investments in the Basque Country were very limited since the bulk of public investment was carried out by the Provincial Councils. The taxes that were initially agreed were the most important of those collected by the State Treasury, except for Customs duties: the five original taxes were the Territorial Tax, Industrial Tax, the Tax on Capital Transfer (Impuesto de Derechos Reales), Stamp Tax and Consumption Tax. Starting from these five original taxes, the number of taxes subjected to the agreement was extended in successive renewals, with the result that the sum to be paid to the State (the Quota) increased.

As the taxes subjected to the agreement were extended, and the economy of the provinces prospered - especially that of Biscay due to the strong development of mining, metalworking and ship building - the Quota increased:

Agreed Liquid Quota. 1878-1937

Año	Vizcaya	Guipúzcoa	Álava	Total
1878	857,8	655,8	529,6	2.043,2
1887	1.286,6	983,7	529,6	2.799,9
1894	2.557,0	1.446,1	597,7	4.600,8
1898	3.006,0	1.706,3	693,7	5.406,0
1899	2.617,0	1.486,3	602,7	4.706,0
1900	2.703,7	1.490,6	603,7	4.797,9
1904	2.553,1	1.373,9	548,1	4.475,1
1906	4.984,0	2.066,5	623,2	6.988,1
1913	4.388,4	2.066,5	623,2	7.078,1
1916	4.709,4	2.226,5	642,1	7.578,1
1920	6.999,4	2.411,5	667,1	10.078,1
1926	28.380,0	10.050,0	1.570,0	40.000,0
1932	28.734,0	10.177,0	1.589,0	40.500,0