Where your taxes go: how local government spends your money in Spain

Have you wondered how your local town hall raises funds and what your money is being spent on or how it's divided? Here's what you need to know.

Published: 25 May 2023 17:15 CEST

Where your taxes go: how local government spends your money in Spain

Photo: Dimitry/Pixabay.

Politics in Spain is incredibly regional and localised, with governments at the regional (known as autonomous community) and local level (municipality) wielding significant amounts of power over how things are done.

Local governments also have a significant amount of power over how and where your money is spent and on what. If you’ve ever wondered where it all goes to, then read on.

Where the money comes from?

Municipalities in Spain generally receive money in three ways: from the government, from the regional government, and, of course, from its residents: that is, the local taxes they levy and the fees they charge for providing public services such as rubbish collection.

According to RTVE, money from the national and regional governments combined makes up around a third of municipal income (35 percent) on average across the country. But it’s municipal taxes that generate the most money for town halls, often 50 or 60 percent of the total income they receive.

Municipalities charge their citizens three taxes: a property tax, known as IBI; a road tax, known as VTM; and the Economic Activities Tax, called the IAE.

There are also two optional taxes that can be levied at a local level: the IIVTNU, which taxes the surplus value of a property when it is sold, and a tax on construction and buildings works that effectively functions as a licence to be able to build in the municipality.

Generally speaking, the tax that costs inhabitants the most (and brings in the most for town halls) is the Impuesto sobre bienes inmuebles or IBI, wich is the property tax. According to statistics from the Spanish treasury, on average it contributes over a quarter (27.5 percent) of the non-financial income to municipal governments and councils.

In fact, in Spain, there are fifty municipalities that collect more than €2,000 per inhabitant solely on IBI alone.

But that’s not the norm. The average collection in Spain is €365 per inhabitant, though more than 4,000 municipalities collect less than €300 per inhabitant.

Among the most popular places for foreigners to live in Spain, the average IBI revenues per inhabitant (per year) between 2019 and 2021 were:

Alicante – €275.54
Málaga – €241.76
Madrid – €459.38
Palma de Mallorca – €275.71
Valencia – €299.99
Barcelona – €421.83

How do they spend the money?

So, what do the local governments and town halls do with all the tax money they’ve gathered from various places and how do they spend it?

Municipalities spend their tax revenue on providing public services, which can be maintaining public parks, sweeping the streets, repairing lampposts and removing graffiti.

These basic services take around up an average of 40 percent of a town hall’s total expenses, double the 20 percent they allocate to general expenses such as running and paying the staff on the city council itself.

Another 15 percent is spent on public services such as schools, libraries and sports facilities, and 12 percent goes to social services such as care and employment services. Another seven percent goes on local infrastructure such as local transport networks.

The amount local governments spend, however, can vary wildly, and depend on the size, location and needs of each municipality.

Towns with less than 5,000 inhabitants allocate twice as much per inhabitant to general expenses, while bigger cities spend more on basic services, as they need to devote more resources to a much larger number of people. Often, this is reflected in the tax burden.

From 2019 to 2021, the average expenditure of the 7,751 municipalities across the country was €1,557 per inhabitant per year. Most municipalities spent between €1,000 and €2,000 per person in that time, although there were 2,200 localities below that threshold.

In municipalities of interest to foreigners, the average spend per inhabitant between 2019-2021 was: