The State-Generalitat financing agreement leaves the ordinality and collection of personal income tax in 2026 up in the air.

BarcelonaThe Spanish government and the Generalitat (Catalan Government) are committed to implementing the new financing model agreed upon between the PSC (Spanish Socialist Workers' Party) and ERC (Spanish Revolutionary Party) to inaugurate Salvador Illa. The Bilateral Commission formalized this Monday the agreement reached a year ago by the Socialists and Republicans for the Catalan Treasury to collect all taxes and pay a solidarity contribution to the state. This system, however, will be applicable to the rest of the autonomous communities that request it. The model must be approved by the Fiscal and Financial Policy Council, which the Spanish government plans to convene after the summer, as well as by the Congress of Deputies. Below, we detail the "principles" of the new model, still without figures and in which the state does not commit to one of the principles that should govern it, ordinality, and where there is no guarantee that the Catalan Treasury will collect personal income tax in 2026. ERC has already warned that, although the agreement "sounds good" to it, "It needs less drama and much more concreteness," said Republican spokesperson Isaac Albert at a press conference. "There will be no more agreements if agreements are not fulfilled," he insisted regarding the Catalan and Spanish budgets. Republican sources told ARA that they have expressed their displeasure over the agreement to the PSOE.

Ordinality

One of the key points of the investiture agreement was respect for ordinality. This means that, when it comes to distributing resources, Catalonia should not drop in the ranking of autonomous regions based on its contributions. For example, if it were the second-largest contributor, it should also be the second-largest recipient. Both the PSC and ERC have defended this principle without reservation, but have encountered resistance from the PSOE.

Finally, this principle does not appear in the points of the agreement sealed in the Bilateral Commission; it is only mentioned in the preamble to the pact. It argues that the new funding must include Catalonia "contributing in solidarity" in the form of resources to the rest of the state, and adds: "Catalonia believes that this contribution must be calculated transparently, using objective criteria, and it is a necessary condition that its application does not distort the principle of ordinality in the final result." That is to say, the State does not assume the commitment to guarantee ordinality, but rather, it is positioned as one of the requests made by the Generalitat. However, the Republicans warn that ordinality is "non-negotiable."

The "tax basket"

Unlike the current model, the goal is for the Catalan Treasury to collect all taxes and then transfer them to the State. How much? This is what will be defined by the "tax basket," which will determine Catalonia's contribution to state expenditures, and which will be calculated using "objective and verifiable criteria," although these criteria are not specified. For example, the Generalitat currently receives 50% of personal income tax, which the State transfers to it through advance payments once the Spanish Treasury has collected it. Under the new model, it would be the Generalitat that would collect all personal income tax, and then the percentage that stays here and what goes to the State would have to be determined. With this change in model, therefore, the advance payment system would be eliminated and the transition to an updated transfer system would be implemented.

Solidarity

Once this distribution is made through the tax basket, the solidarity quota that Catalonia must contribute to the rest of the autonomous communities will be calculated. This quota, according to the ERC and PSC, should be limited by the principle of ordinality. The Republicans' proposal for the investiture of Salvador Illa, while awaiting the PSOE, should imply that the Catalan Tax Agency (ATC) will manage the taxes, and that, from there, the financing of the Generalitat will come, as well as a solidarity quota to contribute to the common state treasury.

PSC and ERC agreed that the new model would be "unique." However, this does not mean that it would be a single funding model for Catalonia, but rather that it would be applicable to all autonomous communities. What does this uniqueness entail, then? The agreement is being made so that the powers of each autonomous community are taken into account when calculating the distribution of resources.

This means that, in the case of Catalonia, the model would include "additional funding" that would be used to pay for its "unique" powers, such as the Mossos d'Esquadra (Catalan police) and its own prison system.

Personal Income Tax collection

The other pillar of the model is that the ATC will collect taxes. However, this requires the modification of at least three laws: the Organic Law on the Financing of the Autonomous Communities (LOFCA), the Law on the Financing of the Common System of the Autonomous Communities, and the Law on the Transfer of Taxes to Catalonia. These laws will require the approval of Pedro Sánchez's parliamentary partners, and some of them, such as Compromís, are reluctant. To try to make progress in resizing the ATC—taking into account that an agreement on the entire model may take a while—the Socialists and Republicans are working on an initial reform of the three laws solely to enable the ATC to collect personal income tax and other taxes.

This law is precisely what has stalled talks with ERC in recent days. If there is no agreement with the Socialists this month, ERC will present its own. bill in Congress while continuing negotiations with the PSOE. The Republicans assume that there must be "coordination" with the state Tax Agency, but they do not want the ATC to have a subordinate position. The agreement between the two executives establishes that the ATC will assume management responsibilities "within a network model" that must include the participation of the Spanish Treasury, and they commit to establishing a working group to implement this shared management.

Without a 2026 horizon

The investiture agreement established that the Catalan Treasury would collect all personal income tax by 2026. This was an issue that, until a few weeks ago, the Minister of Economy, Alícia Romero, was still committed to, but which the Catalan government itself is now ruling out due to the lack of ATC staff. It currently has about 850 workers, and would need more. between 1,000 and 1,500– and also because it won't be technically ready yet. In the agreement, in fact, this commitment is already up in the air, as it states: "Both administrations undertake to analyze the conventional and, where appropriate, legal coverage necessary so that, throughout 2026, and with the prior agreement of the Joint Committee on Economic and Fiscal Affairs and without prejudice to its extension to the rest of the autonomous communities, the 2025 Personal Income Tax returns can be filed with the Catalan Tax Agency."

Against tax dumping

The new model also provides for "expanding regulatory capacity in tax matters," always within the limits of European legislation, to introduce "additional mechanisms to limit downward tax competition." This is a message aimed at countering Madrid's tax dumping, which the government has long complained about.