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The correct application of the current funding model would have reduced regional debt by 84,500 million euros

The interpretation of the present model caused autonomous regions to lose 11.8% of their revenue between 2009 and 2015

The report of the Expert Committee on Autonomous Community Financing for regions in the common system, published in July 2017, identified notable problems in its design and functionality, but did not highlight other operational deficiencies deriving from the criteria with which the System was applied and that have had serious implications for resource sufficiency in the Communities.

Specifically, the central government’s interpretation of the model in applying the present financing system led to a loss of resources for the autonomous communities in the common system of 84,518 million euros in the period 2009–2015 (the last year for which accounts are available). In other words, the regions’ total resources would have increased by 11.8% in this period, to a sum of 803,419 million euros. These additional incomes would have allowed the regions in the common system to reduce their debt by 8.6 percentage points, since the debt of 25.4% of GDP calculated for 2015 for all the autonomous regions in the common system would have fallen to 16.8% GDP.

These figures were made public in the seminar Impact of the application Financing System on Autonomous Region resources, organized by the Ivie in conjunction with the Valencian Regional Government, held in Valencia. The president of the Valencian Regional Government, Ximo Puig, and the principle of the University of Valencia, Esteban Morcillo, opened the meeting, attended by renowned experts in regional financing from academia and from several of the autonomous communities.

José Antonio Pérez, the Valencian Community representative on the Standing Technical Committee on Evaluation, and Ivie economist Juan Pérez, quantify the impact on the autonomous communities’ sufficiency caused by the errors in the application of the current autonomous region financing model. In their presentation, they stated that resources were lost due to underestimations of interim payments in the year the model was introduced, central government approval of fiscal incentives that would reduce tax revenue, the effects on the Sufficiency Fund due to compensation for increased VAT rates and Special Taxes, and the absence of the foral community (not included in the common system) participation in the financing mechanisms.

These shortcomings have led to a serious problem of resource sufficiency for the autonomous communities in the common system, hampering the effective fulfillment of their responsibilities. Had the model been applied correctly, the regions would have had an extra 17,630 million euros in 2015, enabling them to provide better health, education and social protection services for their populations.

Corrected model by regions

All the autonomous communities in the common system would have benefited from the proper application of the financing system approved in 2009. The model in which the above-mentioned deficiencies have been corrected shows that regions such as Catalonia, Cantabria, Murcia, the Canary Islands and Extremadura would have seen increases of over 14% across the full 2009–2015 period. This would have reduced regional debt in 2015 by more than 10 percentage points of GDP in nine regions (Extremadura, the Canary Islands, Castile-La Mancha, Andalusia, Galicia, Castile and Leon, Asturias, Murcia and the Valencian Community). Likewise, these additional resources would have allowed some of these regions to source finance in the markets rather than obliging them to resort to lines of credit provided by central government such as the FLA (autonomous region liquidity fund).