The Treasury will debate the new financing model with the autonomies in an extraordinary Fiscal Policy Council next Wednesday

The Ministry of Finance will debate with the communities the details of the new regional financing system in a extraordinary meeting of the Fiscal and Financial Policy Council (CPFF) which will be held next Wednesday, January 14. Sources from the department led by María Jesús Montero assure that the new distribution model will be “beneficial” for all territories, that it will “reinforce the income of the autonomous communities to protect the welfare state” and emphasize that, given that the text implies the modification of an Organic Law (the LOFCA), it must receive the approval of the Congress of Deputies. That is the real challenge facing the Executive, given the difficulties in securing sufficient parliamentary majorities to support its reforms.

“It has been negotiated with ERC, yes, but Feijóo refused to negotiate the model when the President of the Government proposed it,” the same sources point out in the face of criticism from the main opposition party and the autonomies where the PP governs, the vast majority. Twelve years after the current system expired (in force since 2009), the Government is about to unveil the first proposal to expand regional financing in seventeen years.

“The review has never been so delayed, but Catalonia has always been an engine of change“, Santiago Lago, senior economist at Funcas and member of the commission of experts created in 2017 by Mariano Rajoy’s government to prepare a reform proposal, tells this newspaper. In his opinion, the key will be to see if the central government gets the Catalan independence parties to support a solution that is “reasonable” for the other territories. and that this translates into a sufficient majority in the Lower House.

The unique Catalan financing that the PSOE agreed with ERC to make Salvador Illa president of the Generalitat in 2024 has been progressively mutating from a kind of economic agreement to what is more like a reform of the regional financing system with a strong Catalan accent. At the moment, it is known that The new model will arrive with more funds for the autonomous communitiesalthough only the figure that will go to Catalonia has been revealed: 4.7 billion. And that will also respect the so-called principle of ordinality. That is, no community should lose positions in the ranking of financing after solidarity between territories comes into play.

Beyond this, the Ministry of Finance has stated that the reform is structured in four large “master beams”, in the words of the first vice president and minister María Jesús Montero. The first is that “no community will be harmed.” That is, more resources will be injected into the system so that everyone gains funding, at the cost of the State giving up a part of its pie. The second is that the model will be the same for all communities, but will take into account singularities and particularities.

Montero’s third “beam” happens because the system is “solidarity” between territories (communities with more resources will cede a portion to those with less) with “objective” criteria. The fourth and last proposal proposes that the management and collection of taxes be done in an increasingly “shared” and “coordinated” manner with the autonomous communities. This happens because the regional tax agencies gain prominence, but without ever breaking the AEAT, the state agency. “I would like a genuine federal agency, but the strategy of consortium agencies is also a solution accepted by the majority of experts,” adds Lago, who emphasizes that the concert model is bad for fraud control and for tax management itself on a national scale.

All of the above suggests that what is on the table is more of an ordered change than a revolution. “In principle, this sounds more like a reform than a breakdown of the system. We’ll see the nuances, but what has been advanced today certainly sounds better than what was presented in July 2024,” he explains to Economic Information María Cadaval, professor of Economics, expert in regional financing and deputy director of the Rifde.

“What we know sounds more like a reform than a breakdown of the system”

Another option that the Treasury has been considering is to offer territories that wish to do so to move from the current model of payments on account (which is based on advances and settlements with a two-year lag) to a immediate payment system. Diego Martínez López, professor of Economics at the Pablo de Olavide University and researcher at Fedea, considers that it would be a good initiative because it would allow deliveries to be linked to the time and context in which the collection occurs.

The ‘holes’ of the current system

The current financing model, which was introduced in 2009 in the midst of the economic crisis, has never satisfied all the autonomies. When distributing the funds, There are four territories that receive clearly fewer resources than the average: Castilla-La Mancha, Andalusia, Murcia and the Valencian Community. In fact, the difference between the autonomy that receives the most per inhabitant – Cantabria – exceeds the worst treated ones – Murcia and the Valencian Community by more than 1,000 euros in financing.

Another criticism of the current system is that it distributes the money among the autonomous communities “without any type of defined equity criteria,” according to Diego Martínez López. That should be, in his opinion, the main axis of the reform of the model. Achieving this will depend on how the ordinality criterion is set. In the end, it is about designing “a system that makes it clear how the money is distributed because at the moment it is not,” he says.

The way in which the Government has carried out the entire process, first agreeing on the conditions with ERC and then applying them to the rest, it has upset the majority of the autonomous communities, governed by the Popular Party, but it has also upset others like Castilla-La Mancha, where the socialists hold power. Something that already happened with the debt forgiveness proposal, the amount of which was revealed first for Catalonia and much later for the rest.