How has the debt relief for the autonomous communities been calculated? Which communities benefit the most from it?

The Government has put numbers to the debt forgiveness of the autonomous communities agreed with ERC. The proposal, which as stated in these agreements is extendable to all the territories of common regime, would mean removing from the communities a burden of more than 83,000 million euros, 25% of the total they accumulate, but not all would be granted the same forgiveness. If the Executive's proposal gets the green light - it has to be approved by law in Congress - Andalusia would be recognized as having the largest reduction in absolute terms; the Canary Islands would see half of their liabilities forgiven. But, how has the amount been calculated for each territory? Which autonomous region will it benefit the most?

The figures of “over-indebtedness”

The first step in drawing up the debt forgiveness proposal was to calculate how much the regional debt grew between 31 December 2009 and the same date in 2013, a few years in which the financial crisis hit the economy hard and left the public accounts reeling. Tax collection plummeted, the resources of the communities dwindled and the only way to cover the expenses was to issue debt, a task that was difficult for both the Administration as a whole and for many territories: the markets began to demand unaffordable interest from the communities with the most battered finances and the State came to their rescue with the creation of liquidity mechanisms. Thus, the liabilities of the communities - and not only - responsible for providing basic services such as health and education, grew like wildfire, by 109,582 million, according to the calculations of the Ministry of Finance, which blames this "over-indebtedness" on the policies of the PP Executive that governed during those years.

This starting figure has been reduced by the increase in regional debt between 31 December 2019 and 31 December 2023, a period equally or more turbulent due to the pandemic and the inflationary crisis. However, the response of the State and the EU was radically different. Instead of cutting spending, the communities received an avalanche of resources and the regional liabilities increased at a much slower pace, by 29,272 million. “The clear premise is that the response given in the previous financial crisis was not adequate and led to a sharp deterioration in the accounts of the communities that were forced to over-indebted themselves with mechanisms such as the FLA,” stressed the Minister of Finance, María Jesús Montero, on Monday during the presentation of the debt forgiveness proposal, which she announced about an hour after the leader of ERC, Oriol Junqueras, made public the amount that would be forgiven to his community.

The distribution by adjusted population

The difference between the two figures mentioned above is around 80 billion euros. The Government has decided that 75% of this total, around 60 billion euros, should be the starting point for calculating the reduction that each community should receive. The distribution has been made based on the adjusted population criterion, a variable that takes into account the number of inhabitants, but corrects it with demographic factors, such as ageing or the number of children of school age, and geographic factors, such as dispersion, since services are more expensive to provide if the percentage of older population is high or the population density is low.

With this criterion of forgiveness by adjusted population, the reduction for all territories would be 1,369 euros per citizen and 19% of the total autonomous liabilities registered at the end of 2023. Some communities, specifically those with high debts, would however remain below this percentage. Therefore, after this initial calculation, which the Treasury calls Phase 1 , some adjustments have been introduced.

Corrections

The first adjustment, or Phase 2 , aims to ensure that no community falls below the 19% tax forgiveness rate. To achieve this, another 11,514 million euros are added to the initial 60,000 million euros, which are distributed between Catalonia, the Valencian Community, the Balearic Islands, Castilla-La Mancha and Murcia. In Phase 3, two additional corrections are made. The first is aimed at compensating for the underfunding suffered by some territories, as they receive fewer resources from the financing system than the average, and involves allocating another 11,506 million in forgiveness. The second, with an additional 917 million, rewards those communities that have raised personal income tax between 2010, when the current financing model came into force, and 2022. “This recognises the fiscal effort that some communities demanded from their citizens to improve the budgetary and fiscal situation,” says the Treasury in a statement.

There are six communities that do not benefit from these additional amounts of forgiveness - Asturias, Cantabria, Castilla y León, Galicia, La Rioja and Madrid - because they do not meet any of the established requirements, that is, they do not have high debt ratios, are not underfunded or have lowered personal income tax in the period considered. Once all the phases are added together, the total amount to be forgiven rises to 83,252 million euros.

Andalusia, the most benefited

The big question is: which region benefits the most? Andalusia is the region that has been recognised as having the largest reduction in absolute terms: 18,791 million. It is followed by Catalonia (17,104), the Valencian Community (11,210) and Madrid (11,210), which have the largest volume of total debt; at the other end of the spectrum are Cantabria (809 million) and Asturias (1,508). This snapshot, however, is not as valuable, as it is normal for larger regions to have larger liabilities and vice versa.

If the write-off is calculated on the volume of liabilities —with debt data from the third quarter of 2024—, the Canary Islands would benefit the most, as they would see up to half of their burden forgiven: 3.2 billion of the 6.4 billion they currently have. Behind them come Andalusia (which would get rid of 47% of its liabilities), Asturias (36%), Galicia (33%) and Extremadura (32%). If the write-off is calculated on the adjusted inhabitants, the highest amounts are those of the underfunded communities —Valencian Community, Andalusia, Castilla-La Mancha and Murcia—, as well as Catalonia, with about 2,284 euros per head. Even so, some of these communities would not be able to return to the markets even with the write-off, as their debt ratio would still be very high. La Rioja, Cantabria, Madrid, Galicia and Castilla y León would receive the lowest amounts, about 1,168 euros per inhabitant. In total, the Treasury estimates that the autonomous regions could save between 5 and 7 billion euros in interest.

Organic law

The next step is to debate the proposal this Wednesday at the Fiscal and Financial Policy Council (CPFF), the body that brings together the Ministry of Finance and the regional councillors of the branch. The negotiation will not be easy, since the majority of the communities of the common regime, 11 of 15, are governed by the PP, which has already announced that it will oppose the reduction. The measure, in fact, is voluntary - the regional barons can opt out of it - and to be applied it will need to be embodied in an organic law, which must be voted on in Congress with a qualified majority. The Treasury estimates that it could be ready by the end of the year, provided it manages to convince a very fragmented parliamentary arc.