At the end of January, a renewed debate over tax policy erupted in Madrid. Regional head Isabel Díaz Ayuso announced plans to reduce the regional personal income tax (IRPF) by half a percent. Although such promises have been made before, no specific date for implementation has been set. Ayuso emphasized that this measure would provide tangible support to local residents and help Madrid maintain its status as one of the country’s most attractive regions.
However, there are many contradictions behind the scenes of this announcement. Just a month ago, members of the regional leader’s inner circle expressed doubts about the feasibility of this initiative, citing unresolved financial issues between Madrid and the central government. Yet now, Ayuso insists the tax cut will go ahead, although she does not specify when exactly it will happen. According to her, this measure was part of her election platform and aims to ease the tax burden on residents.
Financial disagreements
According to regional authorities, lowering the IRPF rate would save around 500 million euros and affect nearly three million taxpayers, primarily those with low incomes. The minimum tax rate is set at 8%, the maximum at 20%. At the same time, this initiative has not yet appeared on the list of tax relief measures planned for 2025, despite previously being called a key element.
Political circles continue to debate how realistic such promises are. The regional government holds a majority in the Madrid Assembly, which in theory should allow the reform to pass without major obstacles. However, the issue of funding remains unresolved. Ayuso’s team has previously stated that the implementation of the tax reform depends on the arrival of funds they say are owed by the central government.
Claims against the central government
Ayuso and her team have repeatedly accused Pedro Sánchez’s government of failing to fulfill its financial obligations to the region. Specifically, they refer to €10.5 billion that Madrid allegedly missed out on due to non-compliance with the law supporting dependent citizens. Under this law, the state must cover half the costs, but according to regional authorities, these funds were never allocated.
Madrid officials also point to chronic underfunding in several other areas, from the allocation of European funds to transport expenses and healthcare for prisoners. The central government, meanwhile, presents its own arguments, highlighting that Madrid has received record amounts from the state budget in recent years and, in terms of fund utilization, even outpaces Catalonia.
Political struggle
In response to accusations from Madrid, Pedro Sánchez pointed out that over the past seven years, the region has received 129 billion euros—50% more than under the previous administration. However, these figures failed to convince his opponents. The issue of funding has sparked a true ideological battle, with each side presenting its own arguments and statistics.
Socialists highlight a contradiction: regional authorities complain about a lack of funds while simultaneously promising new tax breaks, including for income, inheritance, and property taxes. According to government representatives, the Madrid branch of the Partido Popular is deliberately reducing budget revenues, expecting the rest of the country to compensate for the shortfall. Political circles call this the ‘arsonist-firefighter’ strategy.
Consequences for residents
The promise to lower the tax was made during an active election campaign, becoming one of Ayuso’s main advantages. If the reform is approved this year, it will take effect at the beginning of 2027—right before the new elections. For many regional residents, this could become a strong argument in favor of the current government.
Nevertheless, uncertainty persists around the initiative. The question of whether the region will receive the necessary funds from the central government remains unresolved. Meanwhile, Ayuso’s opponents continue to criticize the tax reduction policy, pointing to potential risks for funding social programs and infrastructure. In Madrid, the debate goes on about who will ultimately benefit from this reform—ordinary citizens or the political elite.
