The long road to improving resources: this is how the regional financing system has evolved

BarcelonaThe new proposal presented this Friday by the Minister of FinanceMaría Jesús Montero's proposal represents a new episode in the evolution of the system for financing the autonomous communities in Spain. The project now being defended by the Spanish government—and which will have to be approved by both the Fiscal and Financial Policy Council and Congress—is the first reform since 2009 (the model theoretically expired in 2014, but it has taken twelve more years for a national government to make a new proposal). If it is finally approved, it would be the sixth type of autonomous community financing since 2009. The models in force have gradually expanded the regulatory capacity, but above all the financial capacity (the amount of resources), of the autonomous administrations at the expense of state revenue, in parallel with the transfer of powers that the territories have assumed. However, it must be borne in mind that some autonomous communities have more powers than others (in the case of Catalonia, for example, it has the Mossos d'Esquadra (Catalan police) and prisons, which the other communities do not) and that the series of reforms has never considered the possibility of absorbing the two autonomous communities with their own special legal status, the Basque Country and Navarre, into the common system, as they have a level of autonomy that is essentially the same as that of other autonomous communities. The first model of regional financing was implemented in 1981 and remained in effect until 1985, as the 17 autonomous communities were formed. Catalonia was the first to regain self-government with the restoration of the Generalitat in 1976, but its Statute of Autonomy was not approved until 1979, just after the Basque Country's. Other communities took several years to finalize their statutes.

This first model was considered provisional from the outset and was based on the concept of the Percentage of Participation in State Revenue (PPI), a subsidy that the central government paid to the autonomous communities, in addition to other transfers. This initial system included almost no ceded taxes. In 1983, a further step was taken with the approval of a tax transfer law that gave the autonomous administrations all the revenue from taxes such as inheritance and gift taxes, wealth taxes, stamp duty, and gambling taxes, which they still retain today.

More resources in the communities

However, in 1986, with the socialist Felipe González in power, a definitive model was approved through the Organic Law on Regional Financing (LOFCA), which created a new mechanism whereby the autonomous communities' share of state revenue was weighted according to a series of variables such as population, area, and population density. However, this model increased the disparities in resources per capita received by each regional government, so it was revised, as planned, in 1992—the PSOE had lost its absolute majority and depended on the votes of Basque and Catalan nationalists in Congress—when the weighting of the different variables in the distribution was changed, primarily to give more weight to the Andalusian variable. In the case of the 1992 reform (which came into effect in 1993), a new concept was introduced: the transfer to the autonomous communities of 15% of personal income tax (IRPF), while maintaining the PPI (Integrated Participation Plan), which acted as a maximum limit. Thus, a community could not receive more than its share according to the PPI calculations, even if, adding the IRPF, it should have received more money. The main complaint that this system sought to resolve, the lack of resources, persisted. This second model was revised again in 1996, with José María Aznar's People's Party in the Spanish government and during the agreements with Convergència i Unió. In 1997, a new model came into effect that significantly increased the resources of the autonomous communities. With this agreement, 30% of personal income tax (IRPF) was transferred to the autonomous communities, which also had the regulatory power to establish any tax brackets they wished within that percentage. This introduced, for the first time, a disparity—albeit small—between what citizens in different regions of the country paid. Similarly, Aznar's reform allowed the governments of the various territories to have regulatory power over the taxes ceded in 1983, thus expanding the financial autonomy of these governments in terms of their ability to decide how much their citizens paid. In 2003, all the autonomous communities definitively assumed responsibility for healthcare, which until then had only been held by some. This forced the Ministry of Finance to present a new proposal that increased the communities' share of IRPF to 33% and ceded new taxes to them, including 35% of VAT. In the 2001 reform and previous ones, the Spanish government still held considerable influence, acting as guarantor of minimum income for the less affluent autonomous communities through various mechanisms. In all cases, the complaints from the Generalitat (then presided over by Jordi Pujol, with the exception of Josep Tarradellas's initial years) were that the model was too unfair to Catalonia in terms of resource allocation and that, moreover, the resources were insufficient.

The 2009 reform

The last change He arrived in 2009Under the government of José Luis Rodríguez Zapatero, who negotiated with the tripartite coalition of the Generalitat (Catalan government), the new model brought a further increase in revenue for the autonomous communities. However, it also created a complex underlying mechanism that made it very difficult to understand. With this reform, still in effect today, the regional governments gained funds, as they retained the 100% of taxes they already had and also received 58% of the revenue from state taxes on hydrocarbons and alcohol. However, the main change 17 years ago was the increase to 50% of the regional share of VAT and the regional portion of personal income tax. These are the two portions that Montero's proposal seeks to increase to 56.5% and 55%, respectively, while eliminating the complicated resource allocation funds in favor of a simpler concept based on adjusted population. However, what is not guaranteed is that a region contributing more resources to the common fund will end up with more funds than one contributing less—that is, the principle of ordinality, so vehemently demanded by the pro-independence movement for decades, is not guaranteed—although the minister assured that the design of the new model would make this possible in the Catalan case. Nor does it contemplate regional participation in other taxes, such as corporate tax.