The Quota Law sets that the net quota for the base year shall be determined by applying the attribution rate to the total amount of the charges not assumed by the Autonomous Community and by making the relevant adjustments and compensations. The calculation scheme is as provided below in accordance with Appendix I of the abovementioned law.

Million euros

1. State Budget: expenditure

The starting point is the total expenditure of the Central Government, as accounted in the State General Budget.

2. Charges assumed by the Autonomous Community

To follow, the sums allocated to the competences assumed by the Autonomous Community as a result of the transfers carried out by virtue of the Statute of Autonomy. This way how much the Central Government spends in the rest of the State in competences, that are executed by the Basque Institutions in the Basque Autonomous Community, is determined.

3. Total non-assumed charges

If the expenditure in competences executed by the Autonomous Community of the Basque Country is subtracted from the total State expenditure, the obtained result is the non-assumed charges, that is, the State expenditure in competences non-assumed by the Basque Country. The Quota Law determines the methodology to calculate the total amount of the non-assumed charges, by deducting from the total expenditure allocated in the State budget the net budget allocation corresponding to the assumed competences by the Autonomous Community, and it also names three concepts to be regarded, inter alia, as non-assumed charges:

• The inter-territorial Compensation Fund. Article 158.2 of the Spanish Constitution designs an essential tool in order to carry out the mandate laid down in article 138.1, when stating that, with the aim of redressing inter-territorial economic imbalances and implementing the principle of solidarity, a Compensation Fund shall be set up for investment expenditure in the relatively less developed Communities. The consideration of these sums as non-assumed charges makes the contribution of the Basque Country to the solidarity principle effective.

• Transfers or subsidies granted by the State to public entities, provided that the competences exercised thereby have not been assumed by the Autonomous Community of the Basque Country. In this case, the financing of the non-assumed charges by the Basque Country, that the State indirectly executes via the budgets of public entities not included in the Central government budget, is guaranteed.

• The interest payments and repayments of principal on all State debts. The consideration of non-assumed charge of the financial cost of the State debt is the logic consequence of the compensation in the Quota of the State budget deficit.

4. Non-assumed charges to be financed by the Autonomous Community

The Total non-assumed charges fixes how much the central government spends in the whole of the Spanish territory in non-assumed charges by the Autonomous Community. In order to obtain the portion of the cost to be paid by the Basque Country, the attribution rate is applied. The attribution rate or imputation index must be basically equal to the rent of the Basque Autonomous Community relative to the one of the State. In practice, this rate has remained constant at 6.24 per cent since 1981 when the Quota system was put into force.

In fact, in order to obtain the non-assumed charges that the Autonomous Community of the Basque country shall finance, the total expenditure in non-assumed competences (85,752.6 million euros) is multiplied by 6.24%. The result is 5,350.9 million euros in the year 2007, the base of the five-year period.

5. Non-agreed taxes

They are the State income allocated in Chapters 1 to 3 derived from non-agreed taxes and from fees and public prices for services not assumed by the Basque Country. The most relevant entry in this group is the custom duties. They are, therefore, the sums collected by the State and used to finance non-assumed charges. The quantity of the non-agreed taxes is estimated by the application of the 6.24% to the total amount obtained in the whole of the Spanish territory by the State (3,942.6 million euros) from the mentioned concepts.

6. Non-tax income

They are the non-tax revenue collected by the State but attributed to the Basque Country. They are the sums allocated in Chapters 4 to 8 of the State budget (current and capital transfers, real state income, dales of investments and variation in financial assets). Their value is again estimated by the application of the attribution rate to the total income obtained by the State from these concepts. (7,589.3 million euros).

7. Adjustment for agreed direct taxes

This is the compensation set to improve the accuracy of the estimation of the tax direct income attributed to the Basque Country and the rest of the State. In both cases, the buyers of State bonds and the State civil servants who provide their services to the Central administration in the Basque territory, shall deduct the exacted withholding taxes on their income (and paid to the Treasury of the Central government) in their income tax returns which correspond to the Historical Territories, being the result that the withholding taxes are paid to the State and are refunded by the Autonomous Community, which requires the compensation pursued by the adjustment set in this paragraph 7.

8. State income attributed to the Basque Country Autonomous Community

The addition of the three abovementioned concepts is the total income obtained by the Central government and which is attributed to the Basque Country Autonomous Community. In the year 2007, it was 1,152.4 million euros.

9. Budget Deficit

The deficit is another of the entries within the non-agreed income and, as such, the percentage of income from deficit corresponding to the Basque Autonomous Community has to be attributed to the Basque Country, in order to guarantee that the Autonomous Community finance the non-assumed charges in the same way as the State does. Therefore, the portion of deficit attributed to the Basque Country in accordance with the allocation in the State General Budget is subtracted from the Quota and the payment of interest and the State debt redemption is included as non-assumed charge.

The relevant deficit is again estimated by the application of the attribution rate (6.24%) to the total deficit resulting from the State budget.

10. Net Quota

This is the sum effectively paid for non-assumed competences or charges. It is obtained by subtracting, from the total expenditure to be paid, the sums corresponding to the State collection of the attributed income to the Basque Country Autonomous Community and the portion of expenditure which is financed via deficit.

11. Other compensations

The final amount of payable Quota is obtained by subtracting from the Net Quota some of the sums which correspond to the financing of some expenditure competences assumed by the Basque Country Autonomous Community. These compensations can vary from time to time.

• Compensations of article 6.2 of the Quota Law. A portion of the Social Security payments are used to finance Social Security functions and services related to health and social services devolved to the Basque Country. However, the payments are still being collected by the Central Government though the Treasury of the Social Security. This deduction compensates to the Basque Country for these payments that should be collected by the Basque administration to finance these services but are still being collected by the State Administration.

• Sole Transational Provision. Exceptionally, for the 2007 fiscal year, the provisional Quota was increased by the amount corresponding to the part of the year in which the officers of the last graduating class of the Autonomous Police Force at that moment were in the training period.

• Álava Compensations. Álava, as a result of its historical tradition, bears some additional competences compared to the rest of the Autonomous Community of the Basque Country. In the provinces sited in the Common Territory these competences are executed by the Central State. These competences are quantitatively of little importance but its cost is deducted from the Quota and the deducted sum is given to Álava.

12. Net amount payable

This is the amount to be ultimately paid by the State. It is obtained subtracting from the Net Quota (10) the compensations for particular competences (11).

end faq