Financing and the precipice

Catalonia knows very well the cost of euphemisms and the value of the principle of reality. Therefore, when negotiations on the financing system come up, it would be wise to choose precise and unsweetened words. The PSC and PSOE governments will agree on the general characteristics of the financing model in the bilateral negotiations, and in the negotiations with ERC, they should lay the groundwork for tax collection, starting with personal income tax. Negotiation sources speak of "laying the groundwork for a unique model for Catalonia that can be generalized to the rest of the regions." The translation is: a financing model has been agreed for Catalonia—as always, because it has taken the initiative in all the reforms—that will be neither a concerted agreement nor unique, because it will be applicable to all the autonomous communities.

Does this mean it will be a bad agreement? Not necessarily. The details, always devilish, will have to be read, but it could be a step forward within the current reality, which is susceptible to deteriorating significantly and rapidly.

With the general framework agreed upon, the big enigma remains the exact amount of resources that will have to be injected into the system. Negotiations should begin at 18 billion euros, which would mean updating the figure added in the model agreed upon in 2009 and which expired in 2014.

The main virtue of the system is that it will address revenue and not just expenditure, and it will guarantee the principle of effective ordinality at the end of all calculations. The key is that it should not provide for advances—that is, the approximate advances of the current system that the State settles after two years—but rather the direct collection of taxes. For decades, Catalonia has been demanding not only more money but also the ability to decide how it is managed and what spending priorities it establishes. A decentralized tax system should allow Catalonia to be more competitive, attract investment, and stimulate the development of key sectors that can guarantee long-term growth. But fiscal autonomy is not only an economic issue, but also a political one. Regaining control over resources would allow Catalonia greater room for maneuver in a global context in which competition between regions and countries is increasingly fierce.

There are still many fundamental unknowns that will have to be resolved during the negotiations. What percentage of taxes will be collected, over how many years will this collection be gradually implemented, what will the relationship between the two tax agencies be like, what criteria will be used to decide the solidarity share, how will the legislative reform of the LOFCA and the financing laws of the autonomous communities and Catalonia be implemented. Will the benefits of Madrid's capital status, which allow it to engage in tax dumping at the expense of other territories, be offset? Will sufficient funding be secured for all powers, especially those that are not homogeneous?

Among the most complicated issues to negotiate, which are still open today, is the development of the Catalan Tax Agency. Experts speak of a development period of about five years before the full collection of personal income tax, and politically, no one dares to specify whether there will be a shared platform between the two agencies. For now, the negotiations sound like a statutory consortium and the sharing of taxpayer data.

The future of the negotiation of the financing system cannot be isolated from the instability of the political situation. If legislative reforms are not implemented quickly, they will once again become bogged down in the mud of Madrid politics, threatened by an early election. To agree on the legislative reform, eight parties will be required, including the Valencian Compromís party, which is experiencing a dire liquidity crisis and needs to be able to join the reform. Therefore, a lot of backroom negotiation will be required with Sánchez's investiture partners.

Above all, we will have to see how the Spanish government's health evolves, besieged by the Cerdán case and gripped by fear of new revelations that could turn what is currently a corruption case into a case of irregular financing of the PSOE, as the judge seems to be seeking. Pedro Sánchez emerged from the appearance in Congress unscathed thanks to the fear of his partners and the leader of the opposition. Feijóo is incapable of building bridges with potential partners and scorns them by throwing himself into the arms of Vox, a strategy that does not seem the most intelligent for obtaining a majority that will take him to the Moncloa. Without alternative proposals and squandering what could have been, in practice, a question of trust, the PP is playing only with the harshness of breaking the legs of its opponent and his family, as if, in addition to the asset declaration, politicians now have to present the moral credentials of their father-in-law.

In a very tense session, the investiture partners saved Sánchez. Approaching the threshold of the precipice, eyeing the height of the fall into the void and calculating the violence of the impact, they all preferred to look the other way and continue down the steep path, even if it is difficult. It is in this context that financing is being negotiated.