Madrid’s Unseen Fiscal Contribution: A Deeper Look at Salary Flows
The recent report from the Tax Agency, ‘Labor Market and Pensions in Tax Sources 2024,’ has unveiled a crucial, often overlooked aspect of Spain’s regional fiscal dynamics: the significant outflow of salaries from the Community of Madrid to other autonomous communities. This phenomenon, which saw Madrid-based companies disburse an astounding 51.7 billion euros in salaries to over two million non-resident taxpayers in 2024, casts a new light on interterritorial solidarity and the so-called ‘capital effect.’
For years, the debate around regional financing has been dominated by claims of fiscal imbalances, particularly from Catalonia. However, this report introduces a counter-narrative, revealing that while Catalonia receives a net income of approximately 2.4 billion euros from salaries paid by its companies to residents within the region, Madrid acts as a major net exporter of salary-related tax revenue. This implies that a substantial portion of income tax generated from these salaries benefits the treasuries of other regions, rather than Madrid itself.
The ‘Capital Effect’ Reconsidered
Critics often point to Madrid’s status as the capital, suggesting it enjoys an unfair fiscal advantage due to the concentration of state administrative apparatus. The Tax Agency’s report confirms that Madrid centralizes a quarter of public sector salaries, leading to nearly 7 billion euros in withholdings for residents, compared to Catalonia’s less than 4 billion euros. However, this ‘extra’ income is more than offset by the nearly 10 billion euros in withholdings lost due to salaries paid by Madrid-based companies to non-resident employees.
This outflow of salary and associated fiscal balances from Madrid-based companies is distributed across the country, with Andalusia being the primary beneficiary. Over 700,000 Andalusian residents receive salaries from companies in other regions, resulting in a favorable salary balance of 17 billion euros for Andalusia. Bordering regions, Castilla y León and Castilla-La Mancha, also benefit significantly, with 250,000 and nearly 300,000 residents, respectively, receiving salaries from outside their communities, contributing almost 7 billion euros each in IRPF taxes.
Salary Coverage in Autonomous Communities by Resident Companies (Percentage)
- Madrid: 147%
- Cantabria: 111%
- Catalonia: 98%
- Balearic Islands: 96%
- C. Valenciana: 89%
- Galicia: 88%
- Murcia: 85%
- La Rioja: 85%
- Aragon: 84%
- Asturias: 80%
- Canary Islands: 78%
- Andalusia: 77%
- Extremadura: 77%
- Castilla y León: 71%
- Castilla-La Mancha: 66%
These figures highlight that, apart from Madrid, only Cantabria pays more salaries than it receives, indicating that most other autonomous communities receive more salary income than their domestic companies pay out, albeit with varying degrees of external dependence.
Where Salaries Are Highest
The report also indicates that the Community of Madrid offers the highest salaries across all age groups. The average salary paid in Madrid last year was 31,911 euros, significantly above the national average of 24,962 euros in 2024. When considering the actual contracted salary, without the downward weighting of applying it to twelve months, the average remuneration would exceed 36,000 euros. If extrapolated to a full year, the average annual salary in Madrid would be around 38,500 euros.
Comparatively, the average annual remuneration in Spain is just over 32,000 euros, with Catalonia (34,771 euros), Asturias (32,096 euros), and Aragon, the Balearic Islands, and Galicia (all above 30,000 euros) offering the best-paid positions. Extremadura (27,271 euros), the Canary Islands (27,941 euros), and Murcia (28,351 euros) are at the lower end of the spectrum. Salaries for those under 25 barely exceed 22,000 euros per year nationwide.
Implications for Fiscal Policy and Regional Development
This detailed analysis of salary flows presents a compelling argument for a more nuanced understanding of regional fiscal contributions. Madrid’s substantial payment of salaries to non-residents effectively subsidizes the tax revenues of other communities, challenging the notion of its fiscal ‘selfishness.’ It also suggests that any future reforms to the financing system must account for these complex interregional economic dependencies, moving beyond simplistic interpretations of fiscal balances.
The data underscores the need for a comprehensive approach to regional development that acknowledges the economic interconnectedness of Spain’s autonomous communities. Policies aimed at fostering economic growth and equitable distribution of resources should consider not only where companies are headquartered but also where their employees reside and contribute to local economies through their earnings and subsequent tax payments.
Source: https://www.abc.es/economia/balanza-fiscal-madrid-paga-52000-millones-salarios-20251113201035-nt.html
