PSOE and ERC, stuck in negotiations over income tax

BarcelonaWith the agreed financing model —but pending the necessary support in Congress to be enacted—, the hot potato of the Catalan legislature now lies with an issue that remains unresolved: personal income tax (IRPF) collection. This is a matter that ERC and PSOE have been grappling with since Salvador Illa's investiture. In fact, both negotiating teams shelved this topic in the summer when they realized the gap between them. The Republicans demand legal protection for the Catalan Tax Agency (ATC) as a first step towards enabling it to collect 100% of IRPF within two years, while the Socialists resist. After relegating this issue to the back burner, Esquerra has now increased pressure on the Socialists to comply with what they signed. Thus, the Republicans have conditioned opening budget negotiations on taking steps in this direction. However, at the moment, the positions remain as far apart as they were in the summer.

What did the investiture agreement say? "That the Generalitat manage, collect, settle, and inspect all taxes paid in Catalonia." In this regard, the agreement stipulated that it was necessary to scale up the Catalan Tax Agency (ATC) to assume these functions and that by 2026 the Catalan tax authorities would be collecting the previous year's personal income tax (IRPF). This objective was revised a few months later when the Socialists and Republicans agreed extend this timeline until 2028The government has drawn up a master plan to prepare the Catalan Tax Agency (ATC) to meet this objective, but the legal modifications that depend on the Spanish government—and which would need to be approved by Congress—remain the stumbling block. This was highlighted on Monday by the leader of the Republican Left of Catalonia (ERC), Oriol Junqueras, when he invited the Socialist Party (PSOE) to "pave the way" for Catalonia to collect 100% of the Personal Income Tax (IRPF). "If they don't, we have a proposal in Congress, and there they will have to demonstrate their commitment by voting in favor," he added in an interview on TV3. In this regard, as Junqueras stated, if the PSOE does not vote for the Republicans' proposed law, they will demand an amendment to the Organic Law on Regional Financing (LOFCA) to eliminate the clause that prevents a regional tax agency from collecting IRPF. A change that could be included in the same legal amendment needed to implement the new funding model, according to Republican sources.

The budgets are at stake

The talks are stalled, several sources familiar with the matter admit. The Ministry of Finance maintains that its plan involves the ATC playing a more significant role, but "always in cooperation" with the state treasury. In fact, during the presentation of the financing model, María Jesús Montero spoke of a "network management" between the state agency and the regional ones. However, for now, Esquerra maintains its plan to put it to a vote. his proposed law in February in the plenary session of CongressWhat will the PSOE do: Will they vote in favor of admitting this bill for debate? Would a single vote in favor be enough for Esquerra Republicana (ERC) to sit down at the table to negotiate the state and Catalan budgets? Oriol Junqueras' party isn't specifying. However, they do admit that if there are no gestures demonstrating that the PSOE wants to resolve this issue, "there will be no budget." Meanwhile, the Catalan government (Generalitat) is eager to approve this year's budget and wants to do so during the first quarter of 2026. "The government will do everything in its power to ensure it's approved as soon as possible. We'll work tirelessly to make it happen," the government spokesperson said this week. However, she admitted that negotiations haven't even begun with either ERC or Comuns. If the Catalan accounts fail to be approved, the Catalan government will have to resort to the same formula as a year ago: supplementary budget allocations, which were used to support both ERC and Comuns.