The Spanish government has finally unveiled the long-awaited reform of the regional financing system. After protracted negotiations and political battles, the new proposal proved less revolutionary than what Catalan independence supporters had hoped for. Nevertheless, the changes promise to redistribute billions of euros and shift the balance of power among the regions.
For a year and a half, socialists and Catalonia’s republican leaders argued over the future flow of public funds. Catalan separatists demanded special status for their region, seeking an exclusive model similar to the Basque or Navarrese ‘concierto económico’. However, the final version of the reform is far more restrained. Catalonia will receive additional resources, but not the full control over taxes that ERC had sought.
Political backdrop
The crisis within the Catalan government (Govern) peaked when Pere Aragonès was forced to call early elections in spring 2024. After Junts’s departure left his party in the minority, it failed to pass the budget. In July, the socialists led by Salvador Illa won a decisive victory and secured the region. Forming a new government proved difficult: ERC and Comunes set tough conditions, including a special financial model and protection for the Catalan language.
In July 2024, the Socialists and Republicans reached a preliminary agreement on ‘specialized funding’ for Catalonia. ERC presented this as a victory—almost the creation of a Catalan equivalent to the Basque system. In reality, however, it was a compromise: Madrid was prepared to acknowledge certain regional distinctions, but not to grant full tax control.
The essence of the changes
Catalonia’s original demands included the transfer of powers to collect, manage, and control all taxes, along with payment of a fixed amount into the national budget. This approach could have radically changed the entire system, since Catalonia is one of the wealthiest and most populous regions. However, the final draft focuses more on refining the current model rather than overhauling it.
Instead of an exclusive ‘concierto’ system, Catalonia will receive more funding and some new powers, but will remain within the overall structure. The model provides for an increased regional share of key taxes: now, autonomous communities will receive 50% of income tax (IRPF), 56.5% of VAT (IVA), and 58% of special taxes. This is more than before, but hardly a revolution.
Details of the reform
A key change is the elimination of so-called ‘closure funds,’ often criticized for their lack of transparency. Now, the allocation of funds among regions will be more transparent, and the per capita funding gap is expected to halve. Authorities promise the new criteria will reflect both regional differences and the relationship between the central government and the autonomous communities.
Catalonia remains at the forefront as before. The region will be allowed to collect a portion of VAT generated by small and medium-sized enterprises, as well as receive funds from the new climate fund—two-thirds of which will go to Mediterranean regions. Furthermore, Catalonia will benefit from the ‘ordinality principle’: the region contributing most to the common pool should not end up receiving less than others in the allocation. However, this principle will not apply to Madrid, which continues to contribute more than it receives.
Winners and losers
In absolute terms, Catalonia will receive nearly €4.85 billion in additional funds—more than most other regions, second only to Andalucía. But other traditionally underfunded territories, such as Murcia, Valencia and Castilla-La Mancha, will also see a significant increase. Still, not everyone is satisfied: Madrid, despite being the leading donor, will not see such generous growth.
Interestingly, the announcement of the reforms coincided with political changes: Finance Minister María Jesús Montero will soon leave her post to run in the Andalusia elections. Coincidence? Perhaps, but in Spanish politics such coincidences happen suspiciously often.
Looking Ahead
The reform promises a record 21 billion euros for the regions in its first year—2027. However, the bill still needs to pass through parliament, where heated debates are expected. It’s likely that new concessions or, on the contrary, restrictions may appear during the discussions.
For now, one thing is clear: Spain is moving toward greater financial autonomy for its regions but is not ready for radical concessions. Catalonia gained more than before, but not everything it sought. Other regions have also had their say, and the struggle for resources is only intensifying. Who will ultimately benefit in the long run remains an open question.
