Spain's Autonomous Financing Model Sparks Intense Debate Amid Proposed €21 Billion Boost

Spain's government, led by Minister of Finance María Jesús Montero, has introduced a new autonomous financing model aiming to increase funding to Spain's autonomous communities by nearly €21 billion by 2027. This proposal was the focal point of a recent Council of Fiscal and Financial Policy (CPFF) meeting, where it sparked significant regional political debate.

The new model aims to allocate approximately €224.5 billion in resources in 2027, compared to €152.5 billion in 2023. It offers autonomous communities the choice to adopt the new system or continue with the existing financing method. Key features include an increased share of tax revenues for the regions, with communities receiving 55% of personal income tax and 56.5% of value-added tax collected, along with consideration of demographic, socio-economic, and geographic factors to address territorial needs and depopulation.

However, the proposal’s principle of ordinality, which ties funding to tax contributions, has drawn criticism. This mechanism benefits regions like Catalonia while disadvantaging others, notably Madrid. The government assures no region will lose funds relative to current per capita levels, intending to reduce the funding gap between regions from €1,500 to around €700 per inhabitant.

The political response was polarized. Regions governed by the Popular Party (PP) labeled the proposal as unfair and a political concession to Catalonia's leftist ERC party. PP leader Alberto Núñez Feijóo condemned the plan as an improvisation to extend Pedro Sánchez’s government tenure, criticizing the lack of prior negotiation despite submitting a counterproposal in 2024.

Conversely, Catalonia’s President Salvador Illa and Catalan Finance Minister Alicia Romero praised the model as historic and equitable, emphasizing how it strengthens services and regional empowerment. Despite support from some PSOE-led regions, many expressed concerns about the potential erosion of equality among communities.

The government plans immediate technical discussions with regional governments to refine the model before seeking parliamentary approval as organic law. Montero stressed the reform's focus on enhancing fiscal sufficiency and inter-territorial solidarity with mechanisms to support climate change initiatives and financial compensation for disadvantaged regions.

The CPFF meeting underscored deep divisions surrounding Spain's regional financing. With significant contested points, notably the ordinality principle and political concessions, the debate is poised to continue as the proposal moves towards parliamentary consideration and potential implementation.