The issue of the large-scale income tax cut previously announced by Madrid regional president Isabel Díaz Ayuso is once again up in the air. Her team is no longer making the confident statements that the tax reform will be implemented before the current legislative term ends. Now, the timeline has been pushed back indefinitely, and the phrase is heard more and more often: “It depends on Pedro Sánchez…”
In 2023, Ayuso pledged to reduce the income tax rate (IRPF) by 0.5% for all taxpayer categories. However, this measure is absent from the list of tax breaks planned for 2025. The regional authorities have limited themselves to nine other initiatives, mostly related to housing. There is now speculation that a decision on this key point may not be made before the end of 2026, or possibly only in 2027, shortly before the next elections.
Financial grievances
Ayuso and her economic advisor Rocío Albert accuse the central government of depriving Madrid of 10.5 billion euros. According to them, most of this sum is due to a failure to fulfill funding obligations for care of dependent citizens. While the state promised to cover half the costs, regional authorities claim the funds never arrived.
Furthermore, Madrid authorities regularly report insufficient funding in other areas as well: allocation of European funds, transportation projects, water supply, and medical care for prisoners. As a result, they say, there is little hope for tax relief in the near future. The regional government is clear: “That is impossible right now.”
Madrid and Central Government’s Response
In response to these accusations, the central authorities point to budget implementation statistics. In 2024 and 2025, Madrid leads all autonomous regions in the absorption of government funds, even ahead of Catalonia. Prime Minister Pedro Sánchez reminds that over the past seven years, the region has received 129 billion euros—50% more than under the previous government of Mariano Rajoy.
In this debate, both sides use numbers, but behind the statistics lies an ideological conflict. The Socialists accuse Madrid’s government of complaining about a lack of resources while simultaneously promising new tax breaks. In their view, the region intentionally reduces budget revenues and then demands compensation from national funds.
Debate Over Fairness
Since 2004, authorities in Madrid led by representatives of the Partido Popular (PP) have consistently implemented a policy of tax cuts. During this period, it is estimated that the regional budget missed out on more than 74 billion euros. According to supporters of these reforms, the money stayed with residents and businesses instead of being spent on public services and infrastructure.
Other regions are particularly frustrated by the fact that Madrid has completely abolished the property tax and all but eliminated inheritance and gift taxes. The loudest criticism comes from autonomous communities governed by socialists, who accuse the capital of unfair competition and tax dumping, claiming that such policies attract wealthy individuals and large capital to Madrid.
Politics and public services
The Partido Popular argues that lower taxes benefit local residents. However, socialists insist that these measures reduce budget revenues and negatively impact the quality of public services. They often point to the example of hospitals: Ayuso supports transferring the management of medical facilities to private companies, while the opposition believes that healthcare should not be treated as a business.
