PSOE and ERC are stuck on finalizing personal income tax collection.

BarcelonaOn Monday, there's a busy date on the calendar: the bilateral commission between the Spanish government and the Generalitat (Catalan government) on the new financing. However, on this issue, there's another negotiation in parallel: talks between the PSOE (Spanish Socialist Workers' Party) and the ERC (Spanish Left) to pass a law in Congress that would give Catalonia the capacity to collect personal income tax. According to the sources consulted, the content of the bilateral commission, which has been worked on by the Generalitat, the Spanish government, and the ERC (Spanish Left) is practically finalized and will be limited to setting out in writing the principles of the new model, which will include guaranteeing ordinality, solidarity, and the collection of personal income tax from Catalonia.

"It's not so important what it is, but who signs it," assures a source involved in the negotiations, as the Spanish government will officially adopt part of the content of the investiture pact between the ERC (Spanish Workers' Party) and the PSC (Spanish Socialist Workers' Party) on Monday. More complicated is the negotiation over the law that will allow the collection of personal income tax by the Catalan Tax Agency (ATC): both parties are planning to meet this July to reach an agreement, as there is no agreement on the fine print. This afternoon, according to ARA, a meeting took place in which the gap between the Socialists and Republicans was further consolidated.

The talks were progressing well until Thursday, when they stalled, according to sources consulted. This was when both parties discussed the details of the proposed law they needed to reach a consensus on. Faced with the deadlock, the Socialists and Republicans have given themselves a fifteen-day deadline. The main disagreement, at the moment, is over how to implement the political agreement to collect personal income tax from the Generalitat (Catalan government), which would involve amending up to three regulations at once: the Organic Law on the Financing of the Autonomous Communities (LOFCA) (the Organic Law on the Financing of the Autonomous Communities), the law that regulates the financing system of the autonomous communities under the common regime (22/2009) and February 1, 2009. From the outset, the possibility of collecting income tax should be incorporated into the delegation of powers to the Catalan government, since the remaining taxes "will be incorporated progressively," according to sources familiar with the negotiations. This is an essential step to begin rolling out the ATC (Tax Agency): without legal protection, it cannot grow.

However, this transfer is technically very complex, especially if the Catalan Tax Agency (ATC) only collects personal income tax and not all taxes, as is the case in the Basque Country (which is done by the provincial councils), according to sources familiar with the negotiations. Why? On the one hand, because personal income tax is linked to other taxes such as wealth tax, corporate tax, or VAT (self-employed workers file regular returns), which would initially keep the Spanish Treasury in check, so data would have to be shared constantly. On the other hand, because before reaching this point, a transitional period of collaboration is needed because right now the ATC (Spanish Tax Agency) is not prepared to take on personal income tax collection. The "coordination" that would be required during this transitional period between the two treasuries stalls the negotiation. To understand the leap this would represent for the Catalan Treasury, it's necessary to talk about figures: it would go from collecting €5 billion in taxes to €30 billion, a figure that requires scaling the agency and providing it with more human resources, in addition to adapting the technical software.

The interlocutors

The negotiations between the two parties are being led by Lluís Salvadó, on the ERC side, and Jesús Gascón, Secretary of State for Finance, with technical support from financing experts on both sides. Also directly involved in recent days are ERC leader Oriol Junqueras and First Vice President and Minister of Finance María Jesús Montero. This past week, Junqueras also spoke with Spanish Prime Minister Pedro Sánchez to try to accelerate their negotiations. The Republicans have set "progress" in fulfilling the financing agreement as a condition for discussing the next budgets for the State and also for the Generalitat. For the moment, they have not set a limit on how far the Socialists should go to reach a full agreement.

In any case, the negotiators are aware that beyond overcoming their reluctance, an agreement will be necessary in the Congress of Deputies with the entire plurinational majority, that is, Sumar, Junts, Podem, Compromís, Bildu, and the PNV. They don't see a pact as being as problematic as the model as a whole, which would advance in parallel with the ongoing negotiations between the State and the Generalitat and which must also eventually pass through Congress. Why? Because that first rule wouldn't discuss money, but only the power to collect taxes for Catalonia.

Ordinality, in the bilateral commission

The bill being negotiated by the Socialists and Republicans runs parallel to the bilateral commission to be held this Monday between the Generalitat (Catalan Government) and the Spanish government. The meeting is intended to formalize the agreement signed by the PSC (Spanish Socialist Workers' Party) and ERC (Republican Workers' Party) to appoint Salvador Illa. The meeting will be chaired by the Minister of Territorial Policy, Ángel Víctor Torres, on behalf of the Spanish government, and by the Ministers of the Presidency and Economy, Albert Dalmau and Alícia Romero, on behalf of the Generalitat. The meeting comes fifteen days later than planned in the agreement—the deadline was June 30. According to the sources consulted, the "foundations" of the new model will be agreed upon at the bilateral meeting: the principle of ordinality, solidarity, the tax basket in which the Generalitat (Catalan Government) will participate, and, at the same time, the capacity of the Catalan Tax Agency to collect taxes, starting with personal income tax. However, no specific figures have been set.

Guaranteeing ordinality has been one of the most controversial issues in the negotiations due to the State's resistance, and in recent hours there has even been doubt as to whether it would be included or not. This has been the case despite the fact that it is a principle defended by Esquerra, but also by the PSC. In this sense, their investiture pact even stipulated that until the new financing model was implemented, the Spanish government must guarantee ordinality in Catalonia in 2025, meaning that when it comes to distributing the money, it must not drop in the ranking of autonomous regions in relation to what it contributes. For example, if Catalonia were the second largest contributor, it must be the second largest recipient. "Catalonia's financing must respect the principle of ordinality. The contributions of the autonomous communities per inhabitant, ordered on a scale from highest to lowest, must maintain the same order as the scale of what they receive," the agreement established. If this is not adopted by 2025, compensatory measures will be required," he added.

Another of the negotiating thorns that is accepted by all parties is that there will have to be "solidarity" on the part of Catalonia, but unlike the current model, this solidarity will have a limit, which is to guarantee ordinality. In other words, the new financing system would require Catalonia to collect taxes (initially only personal income tax) and pay a fee to compensate for the services provided by the State, but also a solidarity fee to the rest of the autonomous regions. "This solidarity must be limited by the principle of ordinality," the pact established, meaning that after transferring the funds to the other autonomous communities through the solidarity quota, Catalonia would not be disadvantaged: it would more or less maintain its position when it comes to contributing to the common system and when it comes to receiving.

In recent weeks, ERC has complained that the Ministry of Finance is dragging its feet when it comes to specifying the model. However, the Socialists must also overcome internal resistance, especially from critical voices such as the president of Castilla-La Mancha, Emiliano García-Page, and also from men aligned with Pedro Sánchez, such as the president of Asturias, Adrián Barbón. In an attempt to reassure them, María Jesús Montero assured this Friday that "the government of Spain will never promise any agreement or policy that represents a territorial grievance with other autonomous communities, with other sensibilities, or with another way of understanding autonomy." Speaking from Seville, the Minister of Finance added that the Spanish government has been working "from day one to further strengthen regional powers," although she lamented that there are "some who do not want to exercise their powers."