Municipal governments in Spain
Municipal governments in Spain: a situation asking for changes
What do municipalities do in Spain? 13% of the Spanish State’s public spending corresponds to local administrations. This percentage is not very different from the figures from, approximately, 30 years ago, which was 11%. It is far from the 20% average in federal countries. In Spain, an important decentralisation process has been accomplished, which has fundamentally gone in a single direction: from the central government to the autonomous community governments. Nowadays, the spending of the autonomous communities corresponds to 36% of the Spanish State’s total public spending. The activities of Spanish municipalities focuses on providing services linked to town planning and community welfare (public lighting, sewers, waste collection, funerary services, etc.) These tasks are known as “typically local”. Their involvement in services such as healthcare, education or social services is not very significant in quantitative terms. Furthermore, when municipalities get involved in those services, they do it “voluntarily”, so to say, the legal framework does not oblige them to do so. In fact, the non-obligatory spending that municipalities do represents 26% of their total spending.
Where do municipality resources come from in Spain? There are two important ways to obtain revenues: taxes (which bring 49% of the total) and grants coming from other administrations (they bring 38% of the total). The rest is obtained through financial operations (debt issuing) and through using or selling their assets.
The main tax in the town council’s hands is the property tax (known as IBI in Spain). In 2008, it carried 9,017 million euros to all Spanish municipalities. The tax basket is completed by vehicle tax (2,399 million euros), the construction, installation and work tax (1,856 million euros), economic activity tax (1,515 million euros), the land surplus value tax (1,263 million euros), and a set of taxes and public prices (for waste collection, sewers, public transport, etc.) that brought 9,015 million euros. Municipalities with more than 75,000 inhabitants receive in addition 1.6875% of the income tax (486 million euros), 1.7897% of VAT (349 million euros) and 2.0454% in special taxes such as tobacco, alcohol, and hydrocarbon fuels (95 million euros). It is therefore a tax basket that mainly “pivots” on taxes related to real estate property and activity.
The grant volume received by municipalities was 20,389 million euros in 2008. The most important one comes from the central government and without conditions. Its total volume was approximately 9,500 million euros. But the grants received from the autonomous community governments (a total of 5,700 million euros) and other administrations, such as provincial councils (2,760 million euros) are not to be undervalued.
This funding model has at least three problems: i) municipalities can only take decisions on tax figures that bring them less than 50% of their total revenues, which makes them dependent on other administrations; ii) no fulfilment of the intermunicipal equity principle. There are very significant differences among municipalities’ resources depending on having more or less fiscal capacity of their own. For instance, in Catalonia the municipality that has the highest resources has 5,533 euros per inhabitant, while the one with the fewest resources has 874 euros per inhabitant; iii) a lack of mechanisms to update the model, which should enable it adapt to changing circumstances (larger population, a decrease of tax revenues due to the crisis, new legislation at State and Autonomous Community level, such as the Dependence Law, which increases municipal spending needs, etc.)
All that describes a complicated situation for our municipalities. It would be recommendable to consider changes that should go in the following direction: defining a specific competence framework for municipalities that clarified well their spending responsibilities; increasing their financial autonomy and making them less dependent on other administration grants; reducing the differences of resources in order to be in line with the principle of intermunicipal equity; introducing updating and follow-up mechanisms of the model, which should enable institutional loyalty. And all that should be done without forgetting that around 62% of the municipalities have less than 1,000 inhabitants. However, we will speak about the question of size another day.
Professor of Public Finance at the Universitat de Barcelona.