The Government has presented a new proposal for regional funding. The main argument in its defense is that with this new proposal more revenue is provided to the autonomous communities (CC. AA.) through —fundamentally— increasing the percentages of the IRPF (personal income tax) and VAT transfers, and with it more resources to finance the Welfare State —especially healthcare—.
Without going into further details, one starts from a premise (that the CC. AA. must pay for the Welfare State and, more precisely, for health care) that shapes the Welfare State model we want and that contradicts the model chosen constitutionally in 1978.
European or American model?: Two ways of understanding welfare
Basically, there are two welfare state models in politically decentralized countries. The model followed in the United States (U.S.), which prioritizes political decentralization and establishes a weak welfare state, and the European model, led by Germany, in which a strong Welfare State is prioritized over political decentralization.
“The political struggle focuses on expanding Medicaid, which would practically universalize health coverage”
In the U.S., social welfare policies are in the hands of the states. The federal government can only intervene, if it chooses to, through its spending power, incentivizing certain benefits. In any case, federal intervention is voluntary and has reflected ideological positions, with Democratic administrations having favored greater central financing from the heart of the Welfare State. Especially important are the federal programs Medicare and Medicaid, which were approved in 1965 by President Lyndon B. Johnson in the health field. In a privatized health system like the U.S., through these two federally funded programs, financed from the center, access to health care is provided for vulnerable groups. Today, the political struggle centers on expanding Medicaid, which would extend health coverage to nearly universal levels. This expansion was pursued during the Obama Administration through economic incentives, but faced obstacles from the early Trump Administration.
Does fiscal decentralization trigger a dumping among territories?
Especially during the 1990s, there was an interesting debate in the U.S. about the possible consequences of decentralization in welfare matters. Was this decentralization going to provoke what has come to be calledA race to the bottom, that is, a competition where each member state lowers its taxes and worsens social spending, or would the states become laboratories of democracy, where each territory would seek innovative social solutions and stimulate others? In practice in the U.S., the first trend is borne out, that is, the hypothesis that decentralization processes trigger fiscal dumping and limit the generosity of welfare programs. This hypothesis was articulated in 1990 by Paul E. Peterson and Mark Rom in Welfare Magnets: A New Case for a National Standard.
The mandate of the 1978 Constitution: a centralized and strong system
Facing the American model, the welfare model designed by Spain’s 1978 Constitution leaned, following the German constitutional tradition, toward the configuration of a strong centralized Welfare State in its essential decisions, leaving the autonomous communities to manage, in some cases (in health and education provision), those state decisions. Unlike the U.S., the State is constitutionally obliged to establish a single pension system and contributory benefits for all Spaniards, as well as minimum standards for health care and education for all Spaniards. The fourth pillar of the Welfare State, social assistance, is left to voluntary action, which has allowed socialist governments to pass and fund non-contributory benefits, the dependency law, or the minimum vital income.
“The constitutional option for this Welfare State model began to distort from the moment a system of autonomous financing was designed at the beginning of the 21st century, in which it is assumed that the CC. AA., with their taxes, must finance the Welfare State”
The constitutional option for this Welfare State model began to distort from the moment, in the early 21st century, a system of autonomous financing was designed in which it is assumed that the autonomous communities, with their taxes, must finance the Welfare State, following the same path as the American model. Like in the U.S., we have begun what is calledA race to the bottom, that is, a downward fiscal competition among the autonomies, leaving it to the State to patch up the problems that arise—especially through its spending power.
For example, a sample shows us a clear instance. Although constitutionally and legally it is for the State to broaden the common roster of services included in the health provision, it is the CC. AA. that, under the financing system designed, would have to pay for that expansion. Therefore, even though the Government intends to broaden the catalog of services and include such crucial aspects as dental health, vision care, or mental health, which fall within its competence, since the autonomous communities would bear the financial burden, that state decision is effectively blocked. Instead, the Government has made use of its spending power, following the U.S. path, and has approved programs in dental, mental, or visual health that economically incentivize the CC. AA. to improve those services, but they do not become consolidated and remain in the hands of whatever governments—the central and regional ones—happen to be in power. The political decentralization is prioritized with a weak Welfare State.
We, the Spanish citizens, must decide which of the two Welfare State models we lean toward. One funded by the autonomous communities, which demands greater fiscal decentralization and a concession like the one proposed for the IRPF and VAT. Or a Welfare State funded from the center, in line with the constitutionally established model of competences, which would require a complete rethink of the autonomous financing system. Excuse me, but I have made up my mind. At this point I do not want to follow the U.S. path.
