The negotiations for Salvador Illa to become President of the Generalitat have reopened the old and passionate battle over regional finance. Pedro Sánchez’s willingness to engage in finding a “unique” deal for Catalonia that will appeal to ERC has caused concern among the other regions, which have raised old grievances and demands in anticipation of a possible revision of the current model that governs resource allocation among regions. The initial talks have also split the investiture bloc. The Government, unwilling to reform the current financing model without the participation of the PP-governed regions, is exploring “imaginative formulas” with the PSC, to convince ERC to move away from their demand for fiscal autonomy, a red line for the socialists, and unblock Illa’s investiture before the August 26 deadline.
Minister of Finance, María Jesús Montero, is already working on finding solutions to the complicated situation. The negotiation involves dealing with ERC’s demand for a fiscal autonomy similar to that of the Basque Country or Navarre, which the Government considers unfeasible. At the same time, other coalition partners such as BNG, Compromís, and Chunta have demanded equal treatment for their regions, similar to what Catalonia might receive. The complexity of navigating these demands is further heightened by Junts, Carles Puigdemont’s party, which has also raised objections to the PSC using the issue of financing as a bargaining chip.
The proposal put forth by the Catalan Socialists includes the creation of a consortium between the State and the Generalitat to establish a tax agency that would collect and manage taxes within the community. This agency would address longstanding issues between the Generalitat and the central government, such as delays in fund disbursements or lack of transparency in tax revenue management. The potential benefits of such an agency extend beyond resolving disputes to creating a framework for more effective financial cooperation between the central and regional governments.
In addition to the tax agency proposal, the Government is considering other measures to complement the package, such as specific transfers for Catalonia related to the Mossos d’Esquadra police force, prison management, and research and development. These measures would be supplemented by a reduction in the Liquidity Fund (FLA) debt, providing much-needed relief to the region’s finances. Experts suggest that by implementing existing commitments, such as increasing investments in the community as per the third additional provision of the Statute, substantial progress could be made in addressing Catalonia’s fiscal deficit without requiring a complete overhaul of the current financing model.
While the negotiations between the Government and Catalan parties are ongoing, the broader issue of reforming the regional financing model hangs in the balance. The current funding system has not been revised in over a decade, and the Government is hesitant to push for reforms without the support of the PP-governed regions. Despite calls for urgent action, the current financial situation of the regions has improved significantly, compared to the previous financial crisis, leading some to argue that there is no immediate need for a comprehensive reform. However, experts caution that delaying reforms could lead to increased pressure on regional finances in the future, as EU fiscal rules are reinstated.
As the negotiations progress, it is becoming clear that a fiscal autonomy similar to the Basque Country or Navarre is unlikely for Catalonia. Instead, adjustments to the current model are more probable, such as factoring in variables like price levels or adjusting resource allocations to address disparities between regions. Some regions, like Andalusia and Valencia, have already called for a temporary fund to address their financial challenges until a broader reform is implemented. The outcome of these negotiations could set the stage for a more inclusive and equitable financial system that benefits all regions, rather than privileging certain areas over others. Ultimately, the resolution of the regional financing issue will require careful navigation of complex demands and interests among all parties involved.
