Ituna Center

Basque Economic Agreement

What is the Basque Economic Agreement?

The Basque Economic Agreement: tax and financial self-governance

Respecting the general principles and rules regarding tax coordination, harmonization, and collaboration, full regulatory and management capacity in tax matters is recognized for the competent institutions of each historical territory. The Basque treasuries operate as integral bodies that control the entire tax cycle, positioning them among the sub-state entities with the greatest tax and financial power in Europe.

It is important to note that the holder of fiscal power is not the autonomous institution—namely, the Government and the Basque Parliament—but rather the competent institutions of the historical territories of Álava, Bizkaia, and Gipuzkoa—specifically, the provincial councils and the general assemblies. The Basque Government and the Autonomous Community of the Basque Country are new legal entities established in the 20th century. Aside from the brief period during the Spanish Civil War—from October 1936 to June 1937—there was no legal entity encompassing the three Basque provinces, including Navarra, until the approval of the Statute of Autonomy in 1979.

Therefore, the fiscal sovereignty derived from “historical rights” belongs to the “traditional” competent institutions of the historical territories, rather than to the “newly created” autonomous institutions, whose legal basis is primarily rooted in the constitutional order established by the Statute of Autonomy. Fiscal power has never resided in the autonomous institutions, but only in the competent institutions of the historical territories—both during the period of provincial governance until 1876 and in the Basque Economic Agreement that began in 1878. Thus, in the Basque Country, there is no single tax regime or a single autonomous treasury; instead, there are three, one for each historical territory.

Foto de la comisión Vascongada que se encargó de la negociación por la Renovación del Concierto Económico en 1925
Foto de la comisión Vascongada que se encargó de la negociación por la Renovación del Concierto Económico en 1906

The Quota

The provincial councils manage and collect almost all taxes, both direct and indirect, within their territory—except for import duties and taxes on imports in special taxes and VAT. Among others, they manage and collect the Personal Income Tax (IRPF), Corporate Tax, Inheritance and Gift Tax, and Value Added Tax (VAT).

In contrast, the provincial councils transfer a portion of the collected resources to the State’s coffers. This annual transfer, which is the main instrument for structuring the financial relationships between the State and the Basque Autonomous Community, is known as the quota. The quota is the annual contribution made by Basque institutions to the State’s coffers for the competences that have not been transferred to the Basque Autonomous Community. Although the Statute of Autonomy grants broad powers to the Basque Autonomous Community, the State still reserves significant areas of competence, some exclusively. For example, Defense, Foreign Affairs, the Royal House, and the State’s public debt. Since Basque tax administrations collect nearly all fiscal revenues in the Basque territory, it is necessary for them to pay an amount to the State to finance these non-transferred competences that the State manages, also for the benefit of the Basque Autonomous Community.

Therefore, the quota is not a share of the State in the revenues of the historical territories, but rather a payment to the central administration for the competences and services it provides. The quota is the mechanism that balances the “deficit” in the State’s financing in relation to the Basque Autonomous Community. This is a key feature of the “Basque federal system,” where, instead of the central State transferring funds to Basque institutions, it is these institutions that finance the State’s coffers. Thus, compared to other federal or decentralized models worldwide, the Basque model minimizes the political and financial risks arising from fiscal and financial dependence on transfers from the central power.

Firma del Concierto Económico de 1981 en el Congreso de los Diputados
Acto de conmemoración del 140 aniversario del Concierto Económico en el teatro Arriaga de Bilbao, con la presencia del lehendakari del Gobierno Vasco, Iñigo Urkullu, y los diputados generales de Bizkaia, Gipuzkoa y Álava-Araba

History of the Basque Economic Agreement

Origins of the Basque Economic Agreement

In 1876, after the last Carlist War, the Foral laws were abolished, but not entirely. The Law of July 21, 1876, established by Antonio Cánovas del Castillo, the President of the Government, specified the obligation of the provinces to pay money to the Treasury and provide manpower. The following year, as the provincial councils refused to comply with these obligations, Cánovas decided to establish Provincial Councils in place of the Foral Councils, initially equating them with other councils in the country. However, the obligation for the provinces to pay taxes created issues due to the lack of the necessary administrative and statistical structure.

The provisional solution was to reach an agreement with the provincial councils. These councils were composed of compromising elements and were partially willing to support the Law of July 21. Through this agreement, they would be responsible for paying what the Treasury Ministry could collect on its own. This granted the councils responsibility for the collection of the major current taxes included in the agreement. Initially, it was decided that the duration of this agreement would be eight years.

This agreement is known as the Basque Economic Agreement. It was mentioned in the preamble of the decree approved on February 28, 1878, which referred to the need for the provinces to enter into the nation’s “Economic Agreement.”

Current Legislation

Chronology of the Basque Economic Agreement

In 1824, Luis López Ballesteros, the Minister of Finance of Spain, requested a “donation” of 3 million reales from Álava, Bizkaia, and Gipuzkoa, to be paid over 3-4 years. The provincial territories offered a quota of 7 million reales, to be paid in 7 installments.

In 1845, the tax reform by Mon-Santillán established the foundations of the liberal Spanish treasury. After applying discounts, Álava, Bizkaia, and Gipuzkoa were asked for an annual payment of 2 million reales.

Forty-five years later, in 1850, the quota was compensated with the amounts related to the clergy and cult, charged to the municipalities. After the last Carlist War, the Basque Economic Agreement was established in the three Historical Territories in 1878. It remained in effect in Álava until 1937, when General Francisco Franco abolished it by decree in Bizkaia and Gipuzkoa.

After the dictatorship, the Spanish Constitution was established in 1978, recognizing and protecting the historical rights of the provincial territories. A year later, the Statute of Gernika was enacted, which establishes in Article 41 that the tax-related relationships between the State and the Basque Country are regulated through the Economic Agreement.

In 1981, the Basque Economic Agreement Law was enacted, restoring it in Bizkaia and Gipuzkoa and updating the foundations of the system. This law remained in force until 2002, when a new Economic Agreement Law was introduced, granting an indefinite nature to the Agreement-based system. Finally, in 2008, the Court of Justice of the European Union upheld and protected the Economic Agreement system within the legal order of the European Union through a ruling issued on September 11, 2008.

Ituna Center for Basque Economic Agreement and Fiscal Federalism Studies

About us

The Ituna Center for Basque Economic Agreement and Fiscal Federalism Studies is a project established in 2007 as a result of a collaboration agreement between the Provincial Council of Bizkaia and the University of the Basque Country (EHU). The Provincial Councils of Gipuzkoa and Álava have also signed agreements to support the development of the Center’s objectives. Additionally, Ituna Center collaborates with various departments at UPV/EHU, including Contemporary History, Public Policy and Economic History, Public Law, and Social Sciences Didactics. Currently, it operates two public offices: one at the Faculty of Social and Communication Sciences (Leioa) and the other at the Faculty of Economics and Business (Sarriko).

Since its inception, the Center has offered a Documentation service, collecting, organizing, analyzing, and disseminating information on the Basque Economic Agreement and Treaty, Provincial Tax Offices, the Basque tax system, and, more broadly, on fiscal federalism or financial and fiscal decentralization. For over ten years, Ituna Center has continuously gathered and organized various sources of information, such as press articles, scientific production, and audiovisual resources, in order to provide an extensive database to researchers, academic media, institutions, professionals, and the general public. This database serves as an ideal platform for analyzing “big data,” delving deeper into established fields of study, and opening fertile ground for exploring new research avenues.

Documents on the Basque Economic Agreement

Digital Library

The center offers a variety of books, articles, and publications available for consultation in its digital library.

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