Spain’s Ministry of Finance has unveiled a new regional financing proposal that would provide €20.975 billion in additional funding by 2027 compared with the current system. Total resources distributed that year are expected to reach €224.507 billion, strengthening regional governments’ ability to fund essential public services.

First Deputy Prime Minister and Finance Minister María Jesús Montero stated that the reform aims to safeguard the welfare state, ensuring adequate funding for healthcare, education and social policies, while narrowing funding gaps between regions and recognising territorial specificities.

The proposal has been formally submitted to all regional governments and will be discussed at an extraordinary meeting of the Fiscal and Financial Policy Council, where technical and political negotiations will begin.

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Spain proposes a new regional funding system set to deliver nearly €21 billion extra by 2027

A key feature of the reform is the updated “adjusted population” formula, which introduces additional demographic, social and geographic variables to better reflect the real cost of public services. The plan also increases regional tax capacity, raising the share of personal income tax and VAT transferred to regions, generating almost €16 billion in extra revenue and greater fiscal autonomy.

Solidarity mechanisms are reinforced through both horizontal equalisation, ensuring a minimum level of funding per adjusted inhabitant, and vertical equalisation, with an additional €19 billion state contribution designed to reduce disparities between regions.

The model also introduces new tools, including a climate fund of around €1 billion, a mechanism allowing regions to benefit from VAT generated by SMEs, and a safeguard clause guaranteeing that no region receives less funding than under the previous system.

According to the Ministry of Finance, the proposed framework delivers a fairer, more transparent and more balanced system, cutting funding disparities per adjusted inhabitant by half and reinforcing fiscal co-responsibility.