www.fbbva.es
COMMUNICATION DEPARTMENT
PRESS RELEASE
New data and analyses on regional spending and equal opportunity in key
public services*
Disparities in regional per capita spending
on education, health and social protection
amount to just under 60%




Inter-regional variations in per capita spending extend to 55 percentage
points (pp) in education, 37 pp in health and 87 pp in social protection.
Differing territorial needs only account for a third of this disparity.
Regions’ efforts to preserve the Welfare State despite health and
education spending cuts are reflected in the higher percentage of GDP
assigned to key public services, up from 23% in 2007 to 28% in 2013.
The sustainability of expenditure on key public services will require the
kind of financial planning implemented with the pensions reserve fund.
The report’s authors propose the set up of a reserve fund for education
and healthcare policies, and a review of regional funding disparities that
undermine equality of access to public services.
Madrid, May 4, 2015.- The BBVA Foundation and Valencian Institute for
Economic Research (Ivie) have presented the study Servicios públicos,
diferencias territoriales e igualdad de oportunidades, led by Francisco Pérez,
the Institute’s Research Director and Professor of Economic Analysis at the
University of Valencia , and co-authored by Ivie economists Vicent Cucarella
and Laura Hernández. The report analyzes spending on key public services
(education, health and social protection) in Spain and its autonomous regions
between 2002 and 2013 in order to provide objective data for input to social
debate and policy decisions.
Among its main conclusions is that in the year 2013 inter-regional disparities in
per capita public spending on education, health and social protection ran to
almost 60%. Even after the cutbacks implemented since 2009, better funded
regions like the Basque Country, Asturias and Navarra (figure 1) were spending
more in 2013 than other autonomous regions had spent before the onset of
austerity.
These differences owe considerably more to funding disparities than they do to
each region’s differing needs. Low-income regions have not only accepted the
restrictions imposed by the crisis, but also face additional, ongoing limitations in
their delivery of key services.
* Key public services are activities relating to the delivery and management of health services (primary, specialist and hospital
care, public health, clinical research), education (pre-school, primary, secondary, post-secondary and higher, grants and ancillary
services) and social protection (services to do with retirement, sickness and disability, old age, family protection, unemployment,
housing and social exclusion).
Figure 1. Per capita spending on key public services in the autonomous regions,
2009-2013. Constant 2013 euros per capita
Source: BBVA Foundation-Ivie
Spending cuts and spending diversity in key public services
The report highlights the extent of inter-regional variation in Spain as regards
public spending on public services, and the intensity of the adjustments made
in response to economic recession and the crisis in public finances. The
prolonged recession made large inroads into public revenues and drove real
per capita spending on key public services sharply lower in the study period
(2007-2013). This was despite the authorities’ efforts to safeguard social
expenditures through the crisis years by allotting them a growing share of GDP
and public revenues. In 2013, specifically, spending on key services amounted
to 28% of GDP and 74% of non-financial public revenues (excluding funds raised
through borrowing). These percentages are sizably higher than the equivalent
pre-crisis levels (23% of GDP and 55% of revenues in 2007). (Figure 2).
2
Figure 2. Spending on key public services. 2007-2013.
a) Euros per capita, in real terms
b) Percentage of GDP
Source: BBVA Foundation-Ivie
Major differences emerge in the treatment of key public services. Pensions
spending, for instance, benefited from the greater stability of social
contributions compared to other public revenue items, the support provided by
the Social Security reserve fund set up in 1994, and the Government’s decision
to maintain pension expenditures through the crisis.
Conversely, education and health spending were directly affected by the
decline in autonomous region tax revenues, in the absence of a reserve fund
that would enable them to meet their commitments. Nor was there any
undertaking from government authorities to ring-fence the equivalent policies.
This is apparent from the financial scenarios set out in the Kingdom of Spain
Budgetary Stability Program, which envisaged scaling back expenditure on
these services over the projection period, while plotting a more stringent fiscal
consolidation path for the autonomous regions.
3
“The varying trajectories of government authorities evidence how public
services depend for their sustainability on financial planning and political
priorities,” the study concludes.
Large spending divergences across autonomous regions
Per capita spending on key public services by all government authorities (table
1 at the end of this press release) ranges from 5,253 euros in the Canary Islands
to 8,532 euros in the Principality of Asturias. And differences in the percentages
of regional GDP spent on these services are wider still, running from 19% in the
Madrid Region to 43% in Asturias.
In education – now basically decentralized to the autonomous regions – the
report finds differences in per capita expenditure of up to 55 percentage
points. Although education spending has shrunk since the start of the crisis,
almost all autonomous regions strove throughout the period to keep up levels
of expenditure in terms of GDP. Extremadura and Andalusia were the regions
spending most on education as a percentage of GDP (6.5% and 5.7%
respectively) with the Madrid Region and Catalonia bringing up the rear (2.6%
and 3.4% respectively). The regions with the highest expenditure in per capita
terms in 2013 were the Basque Country and Navarra (1,224 and 1,107 euros
respectively) with Madrid at the opposite extreme (791 euros per capita).
Health spending – also the responsibility of the autonomous regions –
underwent major adjustments in the period. Almost all Spanish regions reduced
their real per capita expenditures as far as a 2013 average on a par with 2004
(1,357 euros per capita). Further, per capita health spending exhibited interregional differences in excess of 30 percentage points both before and after
the austerity drive; in 2013, for instance, the Basque Country spent 37% more on
health than Andalusia. Again, despite the crisis, public spending on healthcare
remained broadly unchanged as a percentage of GDP (6% en 2013).
Spending on social protection – primarily handled by central government and
the social security administration and linked in the main to the individual rights
acquired by each worker – moved up sharply during the first years of crisis, due
to unemployment benefits, pensions and early retirements, and has stayed
broadly flat in real per capita terms since 2009. In terms of GDP, all the regions
increased their outlays from 2007 onwards as far as a 2013 average of over 17%.
In Asturias and the Basque Country, 2013 per capita outlay on social protection
was almost double that of lower-spending regions like the Canary Islands (5,751
and 5,516 euros for the former respectively against the latter’s 3,074 euros).
Indeed, per capita social protection expenditure in Asturias and the Basque
Country exceeded the national average in that same year by 45% and 39%
respectively. These examples indicate that although lower-income regions with
higher unemployment or a more aged population may spend more per
inhabitant on social protection services, a certain regional casuistry is also at
work.
4
Spending disparities derived from funding inequalities
“The main disparities in spending on key public services were not caused by
decentralization, and in fact existed previously because central government
did not roll out services equally to all autonomous regions. However, the
persistence of such inequalities is one reason for the instability of the regional
state,” according to the study.
The causes of the large variations observed in spending on key public services
lie in some cases with regions’ levels of per capita income and, in others, with
differences in the per capita funding at their command. The best funded
regions, the comunidades forales (with the power to manage their own taxes),
are more than 40-50% better off than the worst funded, among them
Andalusia, the Valencia Region, Castilla-La Mancha and Murcia. This revenue
disparity goes a long way to explaining their differing expenditure capacity: the
regions with most funding spend more and provide better public services.
“Failure to correct these inter-regional spending disparities,” the authors
contend, “could deprive citizens of equal access to vital services because of
where they live.”
When tax revenues shrink, as has occurred with the crisis, spending on key
public services takes up a larger slice of budgets. The study finds that lowerrevenue regions earmark a higher percentage of their funding for such services
at the cost of making cuts elsewhere. And this effort, say the authors, shows that
education, health and social services are a priority for regional governments.
Some regions also borrow more heavily to finance such expenditures, so it is
important, the authors stress, “to consider regions’ income and expenditure
levels in these years, when analyzing their deficits and the progress made in
fiscal consolidation.”
The data reveal that spending divergences are only weakly explained by
differing per capita needs: needs being equal, expenditure disparities reflect
inequalities of access to education and healthcare services. In effect,
variations in needs would only justify differences of some 15 percentage points
in per capital outlays, and certainly not the 40 points reported in the study.
Key public services and equal opportunity
The authors warn that “inter-regional differences in public spending on
education, health and social protection undermine compliance with the
principle of equal opportunities in Spain, which should guarantee access to
public services regardless of place of residence.” The origin of this failure mainly
lies in the unequal funding of regional governments; a situation known to exist
but which has been left uncorrected.
One repercussion of postponing the problem is the sharp institutional tensions
now being experienced, but there are also implications for social equity that
cannot be ignored. Although attention has focused on health and education
5
cutbacks and their consequences across all of Spain’s regions, it bears mention
that spending adjustments were imposed on very different baseline levels:
before the crisis, some underfunded regions were already operating with levels
of expenditure that better-off regions have since been reduced to. But this
disadvantaged start did not save them from further cuts. “Unless regional
funding inequalities are tackled at the root,” the authors affirm, “spending on
key public services in Spain will continue to suffer asymmetries incompatible
with inter-regional equity and equality of opportunity.”
Recommendations
Despite the difficulties of these past years, Spain can boast high levels of public
service coverage, the study says. However these services confront three kinds
of problems: they are pressured by the spending austerity imposed by
government; they exhibit major efficiency and equity shortcomings in their
design and execution; and they face additional problems of financial
sustainability due to the long-term growth trend in expenditure on pensions and
long-term care.
The study concludes that four central issues must be addressed in order to
improve public policies in respect of key public services:
-
The sustainability of these services requires the setting of medium- and
long-term financial horizons, prudently determined and accompanied
by reserve funds paid into during expansion years.
-
Promote institutional loyalty such that all government authorities give
priority to these services and fund them accordingly, regardless of the
authority in charge of their management. To this end, Spain should
launch an urgent debate to determine what is a sustainable spend on
key public services, bearing in mind that the baseline situation is one of a
high public deficit and elevated public debt.
-
Review the large inter-regional spending disparities which undermine
equal opportunity policies.
-
Align regional funding systems with the constitutional principle of interterritorial equity.
6
Table 1. Spending on key public services. 2013
a) Per capita euros
Per capita spending
Total KPS
Health
Education
Social
protection
Per capita
GDP
Regional nonfinancial*
revenues per
capita
Asturias
8,531.5
1,714.1
1,066.6
5,750.8
20,037.0
3,409.4
Basque Country
8,360.2
1,620.7
1,223.6
5,515.9
29,303.0
4,019.5
Nav arre
7,164.4
1,482.8
1,106.7
4,574.9
27,795.0
4,481.8
Cantabria
7,052.1
1,530.5
1,003.1
4,518.6
20,659.0
3,794.1
Castilla y León
6,737.6
1,457.1
928.9
4,351.6
21,395.0
3,184.0
Aragón
6,667.0
1,487.4
906.7
4,272.9
24,698.0
3,095.5
Catalonia
6,639.5
1,322.7
890.0
4,426.8
26,509.0
3,323.0
Galicia
6,619.9
1,429.9
914.9
4,275.1
19,893.0
3,227.8
La Rioja
6,363.9
1,429.5
890.3
4,044.1
24,414.0
3,449.9
Extremadura
6,168.7
1,463.9
1,007.7
3,697.1
15,500.0
3,684.0
Madrid Region
5,948.1
1,377.2
790.7
3,780.2
30,661.0
3,091.8
Castilla-La Mancha
5,801.8
1,334.2
858.8
3,608.7
18,279.0
2,827.3
Valencia Region
5,709.7
1,301.1
866.7
3,541.8
19,704.0
2,839.3
Andalusia
5,659.4
1,182.2
959.3
3,517.8
16,845.0
2,784.3
Murcia Region
5,652.9
1,453.4
994.8
3,204.6
18,392.0
2,849.0
Balearic I slands
5,431.8
1,274.5
830.8
3,326.5
23,624.0
3,543.5
Canary I slands
5,252.5
1,332.2
846.1
3,074.2
19,311.0
3,002.2
Spain
6,230.2
1,356.9
914.9
3,958.4
22,518.0
3,130.5
b) Percentage difference vs. the average
Per capita spending
Total KPS
Health
Education
Social
protection
Per capita
GDP
Regional nonfinancial*
revenues per
capita
Asturias
36.9
26.3
16.6
45.3
-11.0
8.9
Basque Country
34.2
19.4
33.7
39.3
30.1
28.4
Nav arre
15.0
9.3
21.0
15.6
23.4
43.2
Cantabria
13.2
12.8
9.6
14.2
-8.3
21.2
Castilla y León
8.1
7.4
1.5
9.9
-5.0
1.7
Aragón
7.0
9.6
-0.9
7.9
9.7
-1.1
Catalonia
6.6
-2.5
-2.7
11.8
17.7
6.2
Galicia
6.3
5.4
0.0
8.0
-11.7
3.1
La Rioja
2.1
5.4
-2.7
2.2
8.4
10.2
Extremadura
-1.0
7.9
10.2
-6.6
-31.2
17.7
Madrid Region
-4.5
1.5
-13.6
-4.5
36.2
-1.2
Castilla-La Mancha
-6.9
-1.7
-6.1
-8.8
-18.8
-9.7
Valencia Region
-8.4
-4.1
-5.3
-10.5
-12.5
-9.3
Andalusia
-9.2
-12.9
4.9
-11.1
-25.2
-11.1
Murcia Region
-9.3
7.1
8.7
-19.0
-18.3
-9.0
Balearic I slands
-12.8
-6.1
-9.2
-16.0
4.9
13.2
Canary I slands
-15.7
-1.8
-7.5
-22.3
-14.2
-4.1
(*) In the case of Navarra, less contribution to central government finances. Basque Country revenues are affected by the
role of the diputaciones forales (provincial governments with tax powers).
Source: BBVA Foundation-Ivie.
The study comes with a database available on www.fbbva.es, containing
unpublished data on the territorial distribution of key public service
expenditures by central government, the autonomous regions, local authorities
and the social security administration.
For more information, contact the BBVA Foundation Department of Communication and Institutional Relations (+34
91 374 5210; 91 537 3769; 91 374 8173/comunicacion@fbbva.es) or visit www.fbbva.es
7