The Treasury and the ERC are negotiating how to limit the extra benefits of the Community of Madrid.
There is on the table both a reform to stop tax dumping and the fact of taking into account the responsibility of the autonomous regions in the transferred taxes
Barcelona / MadridOne of the consensuses between the Spanish government, the Catalan government, and Esquerra is that the Community of Madrid must be limited in funding. Experts consulted assure that the "capital effect" enjoyed by Isabel Díaz Ayuso's government is one of the main "distortions" of the current funding model, since this gives it many more resources already. de facto compared to the rest of the territories. Added to this is the fact that Ayuso pursues an aggressive tax-cutting policy that acts as an economic magnet to the detriment of other communities (especially those surrounding it), with the reduction of its own and ceded taxes. The president of the Generalitat, Salvador Illa, himself said in an interview in the ARA In August: "We must put a stop to unfair competition and tax dumping in Madrid."
The challenge for negotiators is how to limit this draining effect of the Community of Madrid. This can be achieved through two means: by introducing corrective elements into the common system financing model of the autonomous communities and with a broad tax reform of anti-dumping measures. In this sense, one of the problems posed by Catalonia's demand to guarantee the principle of ordinality in the financing model is that, if this occurs, the community that benefits most is Madrid, since it is the autonomous community that contributes the most to the common financing fund.
According to various sources, the way to limit Madrid within the framework of the new system is still under discussion, but it can be achieved through three mechanisms: vertical leveling (how the resources provided by the State are distributed); solidarity between communities (horizontal leveling); and also through mechanisms for recognizing fiscal responsibility.
A new financing model would therefore require taking into account the fiscal effort made by an autonomous community. For example, if millions of euros are wasted through tax cuts on ceded taxes to the point that they are rendered ineffective, as Madrid does with inheritance and gift taxes. And how can this limited effort be avoided? However, this should not contradict what the ERC also calls for, which is greater regulatory capacity over ceded taxes. According to the models being used, Madrid would gain fewer resources than Andalusia or Catalonia with the new financing system.
In the bilateral commission agreement reached last July, the Generalitat (Catalan Government) and the Treasury Department already committed to agreeing on a new financing model that would take into account "the expansion of regulatory capacity while respecting the limits of European regulations and introducing additional mechanisms to the current ones to limit downward tax competition."
Tax reform
Treasury sources assure that there is no specific "anti-dumping" variable in the proposed financing model under negotiation, and they emphasize that, in any case, María Jesús Montero has always advocated combating this practice, which she considers "unfair." "There must be a similar fiscal effort throughout the state [...]. The same fiscal effort must be required for the same income," the minister has argued on several occasions.
The anti-dumping measure would be implemented through a broader tax reform across the state. Montero has always proposed the idea of harmonization. Treasury sources cite as an example the option of establishing minimum rates for all autonomous communities on transferred tax figures, such as the inheritance tax. In fact, the extraordinary tax on large fortunes approved in 2021, which affects the wealth tax, was born with that intention.
In the political resolution of the PSOE Congress of December 2024, the PSOE already made clear the idea of "reviewing the composition and harmonization of the tax mix [of the financing model] to avoid downward competition [between autonomous communities]," but also "establishing a state tax on large inheritances and donations that acts as a minimum and inheritance tax." A desire, on both the Spanish and Catalan sides, that puts Isabel Díaz Ayuso on a war footing.
