Seventeen years later, the Fiscal and Financial Policy Council has approved a proposal for new regional financing that, if it passes the procedure in the Congress of Deputies, would inject 21 billion more per year to the common regime communities. The Ministry of Finance calls it a historic day. However, the Government’s approach has received outright rejection from all PP executives, as well as from two socialists, Castilla-La Mancha and Asturias.
How was the reform developed?
The reform stems from the investiture pact sealed by PSC and ERC in Catalonia. The party led by Oriol Junqueras has actively participated in the development of this model. In January of this year, the then First Vice President and Minister of Finance, María Jesús Montero, presented it publicly to then specify the details with the autonomous communities in a Fiscal and Financial Policy Council. Now it is Minister Arcadi España who has managed to bring the reform proposal to light.
How much money does it distribute?
The Treasury estimates that this model, if approved in Congress, would provide in 2027, when it could come into effect, 20.975 billion more than the current model contemplates, which dates from 2009. The total annual resources would be 224.507 billion for the common regime autonomous communities. In the last settled year, which corresponds to 2023, these territories received 152.484 billion from the financing system.
How are the resources distributed?
By territories, Andalusia would be the most benefited territory. It would receive 4.846 billion. It would be followed by Catalonia, with 4.686 billion; the Valencian Community, with 3.669 billion; and Madrid, with 2.555 billion. The rest of the territories would receive the following resources: Galicia, 587 million; Asturias, 248 million; Cantabria, 46 million; La Rioja, 25 million; Murcia, 1.188 billion; Aragon, 629 million; Castilla-La Mancha, 1.248 billion; Canary Islands, 611 million; Extremadura, 216 million; Balearic Islands, 412 million; and Castilla y León, 271 million. The money will be distributed based on different criteria.
The adjusted population criterion
Spain in 2026 is very different from that of 2009. In these 17 years, public services have been strained, so one of the main criteria to define the reform affects the adjusted population. It is about defining the number of inhabitants of each autonomous community by weighting variables that influence the cost of services and financing needs. It is not the same an aging autonomy as one with more young people, for example. Or a community facing a depopulation problem. And another territory that has fixed costs.
The criteria to calculate the adjusted population are as follows: the main one is the equivalent protected population, which consists of dividing the population into 20 age groups to know which territory needs a financing bonus. It accounts for 38%. The composition of the register contributes 30%. The number of children and young people of school age accounts for 17%. And those over 65 years old and unemployed without benefits comprise 7% and 1.5%, respectively. Other criteria involve smaller percentages, such as surface area, dispersion, insularity, or the aforementioned fixed costs.
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Assignment of IRPF and VAT
The model incorporates new features, such as an increase in the percentage of assignment of IRPF, which would go from 50% to 55%, and an increase in the percentage of assignment of VAT, which would go from 50% to 56.5%. The 58% is maintained in the case of Special Taxes on tobacco, alcohol, beer, and hydrocarbons. And the tax capacity of the autonomous communities, which is 100%, is maintained in Inheritance, Property Transfers and Documented Legal Acts taxes, Special Tax on Certain Means of Transport, gaming taxes and fees, and the Electricity Tax. The reform would therefore imply a greater assignment of taxes that would increase financing for the communities by about 16 billion euros.
Equalization mechanisms
To prevent large differences in financing between territories from recurring, the approved model incorporates two equalization mechanisms, one horizontal and one vertical. The horizontal implies that communities with a tax capacity per adjusted inhabitant below the average will receive resources and those above will be net contributors. The Treasury’s goal is to reduce per capita financing gaps between territories. The vertical mechanism consists of an extra State contribution of 19 billion to the system. The Treasury assures that this reduces “by two-thirds the distance of each community compared to the territory with the highest financing per inhabitant.”
Advance payments
The proposed model introduces a reformulation of the functioning of advance payments so that the autonomous communities receive resources more quickly. Currently, territories take two years to receive the money. Likewise, communities that wish may join a common or shared cash system in which IRPF and other tax revenues will arrive simultaneously to the state and regional administrations.
Why did the PP vote against it?
PP communities voted against the Treasury’s proposal because they consider that the reform should have been negotiated multilaterally, with transparency, where all the autonomies present their demands, do their calculations, and from there a shared model emerges.
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