The Economic Agreement (, ) is a juridical instrument that regulates the taxation and financial relations between the General Administration of the Kingdom of Spain and the Autonomous Community of the Basque Country.
History
First Stage: 1878–1937
The origin of the Economic Agreement lay in the Third Carlist War defeat of 1876, with 40,000 Spanish troops occupying the Basque Provinces, and held under martial law. There was a need to reach an agreement of some type by which the Basque Provinces (Álava, Gipuzkoa and Biscay) would pay taxes to the State following the approval of the Law of July 21, 1876, which obliged the citizens of "these provinces to pay taxes according to their means, in the same way as other Spaniards," as put by the fueros abolition law pushed by the Spanish premier Canovas del Castillo.
The process of discussing this obligation was highly complex, due to these provinces having up to that point their own jurisdiction, territorial statutes, and their own bodies for political representation (the Juntas Generales or "Representative Assemblies"), which regulated their own internal tax systems, according to their Fueros (Charters).Navarre lost its fueros or home rule following Baldomero Espartero's 1841 coup d'état and subsequent passing of the 1841 Ley de Modificación de Fueros. An agreement was then reached with high-ranking officials of the then newly established Provincial Council (not the sovereign Chartered Council) confirming the new law in Navarre in exchange for keeping certain prerogatives. It was later called the "Compromise Act" or Ley Paccionada. Biscay, Álava, and Gipuzkoa formally refused to accept the 1841 law, hanging instead onto their traditional home rule and the 1839 law, the legal arrangement bringing to a close the First Carlist War. Following fruitless contacts between Antonio Cánovas del Castillo, President of the Government, and the representatives of the Chartered Councils (Diputaciones Forales - the specific Basque governments), the former dissolved the Juntas Generales (the assemblies) and the Chartered Council of Biscay. Between late November and early December 1877, he did the same with the Chartered Councils of Álava and Gipuzkoa.Note that the dissolved Chartered Council (Diputación Foral / Foru Aldundia) was up to 1877 a (theoretically) sovereign governmental body. The Spanish government replaced it by a regular administrative body like the ones operating in other provinces of Spain, a Provincial Council or Diputación Provincial. In this manner, these Basque districts took a legal status similar to that held by Navarre since 1841.
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 to negotiate 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 28, 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 now. The most recent agreement was reached in 2017, after a 10-year-long gridlock. After the Decree of February 28, 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 Year Biscay Gipuzkoa 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 Thousands of Pesetas.
These quantities were invariable between one agreement and the next. Hence the Provincial Councils were able to maintain their own tax system (within the agreed taxes and with a generic State authorisation); they could collect, or not collect, the taxes subject to the agreement, or even other taxes that had no equivalent in the rest of the country (such as the Hoja de Hermandad in Álava, or the tax on bars in Biscay). After paying the Quota to the Treasury Ministry, they could carry out their own policy of expenditure without prior permission from the Government. In short, they enjoyed a broad margin of administrative autonomy.
The system changed in 1937 in the cases of Biscay and Gipuzkoa. Following the fall of Bilbao to the Nationalist troops on June 19, 1937, and the end of the Civil War in the Basque Country, the military rebel Technical Board of Burgos (Junta Técnica de Burgos), by the Decree of June 23, 1937, abolished the Economic Agreement with Biscay and Gipuzkoa. The move was intended to further chastise the coastal Basque Provinces for their role in the defence of the Republican legality during the initial far-right military uprising (July 1937), in a way that they were branded "traitor" provinces. In contrast, the Economic Agreement remained in place in Álava, as well as in Navarre, the latter basing its Economic Agreement on the 1841 Compromise Act (Ley Paccionada).
Second Stage: 1937–1980. The Agreement in Álava
Between 1937 and 1980 the system of the Economic Agreement only continued to be in effect in the province of Álava.
The renewals of the Agreement with Álava, as in the previous phase, responded to two main causes. The first was the expiry of the period of the agreement (the case in 1952 and 1976), and the second was the need to modify the agreement to adjust it to changes in State regulations (the case in 1940 and 1967).
By the Decree of May 9, 1942, the tax reforms of December 1940 and October 1941 were incorporated into the Agreement with Álava. In brief, the Agreement included the Tax on Luxury Consumption, the Tax on Use and Consumption (a revival of the taxes on consumption abolished in 1911) and the Exceptional Tax on extraordinary profits. Besides, the collection of Income Tax was transferred to the Provincial Council of Álava, although with the same regulation as in other Spanish territories.
In February 1952, with the completion of the previous period of 25 years, the Agreement was renewed for a further 25 years. As had been the case in the agreement of 1925, a five yearly increase was established so that the Quotas would not remain frozen. This revision would be carried out in equal proportion to the variation in budgeted State income for the year of reference. From 1967 onwards an annual revision was carried out.
The Royal Decree of November 26, 1976 approved another renewal of the Agreement with Álava, once again to be in effect for 25 years. However, the new period ushered in by the death of Franco and the beginning of the Transition resulted in a clear and radical change in the Agreement.
Third Stage: 1981–2009. The Present-day Agreement
Following the death of general Franco and the start of the Democratic Transition, the demands for Autonomy Statutes were revived in Catalonia and the Basque Country, and this process spread to the rest of the State.
The 1st Additional Regulation of the 1978 Constitution recognised and protected the Historical Rights of the Foral Territories. One of these historical rights was the Economic Agreement, which is why in the negotiation of the Autonomy Statute of the Basque Country the Agreement was extended once again to cover all of the Autonomous Community.
Indeed, Article 41.1 of the Autonomy Statute of the Basque Country of 1979 (Organic Law 3/1979 of December 18) states: “The relations of a tax character between the State and the Basque Country will be regulated through the traditional foral system of Economic Agreement or Contracts”. Article 41.2 establishes the foundations of its content, with the definition of the Quota as the most innovative aspect: “d) The contribution of the Basque Country to the State will consist in a global Quota, made up of those corresponding to each of the Territories, as a contribution to all of the costs of the State that are not assumed by the Autonomous Community”. That is to say, the conception of the Quota changed from the traditional conception of the hypothetical income of the Treasury, to payment of State expenditure on costs not assumed by the Autonomous Community.
On the basis of these principles, the negotiation of the Economic Agreement entered its definitive phase in the last months of 1980. A final agreement was reached on December 29, 1980, although for conjunctural reasons (the resignation of President Suárez, the attempted coup of February 23...) final approval had to wait until May 1981, when it was approved by a Single Article Law (Law 12/1981 of May 13 Official State Gazette (BOE)).
Basic Characteristics of the Economic Agreement of 1981