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). 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.
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:
Thousands of Pesetas.