Spain Faces Political Crisis as Catalan Separatists Demand Tax Control

The Spanish government, led by Prime Minister Pedro Sánchez, finds itself in a precarious position due to escalating tensions with Catalan separatists. The separatist party Esquerra Republicana de Catalunya (ERC), which advocates for Catalonia’s independence from Spain, has issued an ultimatum, demanding clarity on the establishment of a Catalan tax agency.

Failure to comply could result in the ERC blocking the approval of the 2025 national budget, threatening Sánchez’s coalition and the stability of his government.

This warning from the ERC comes in response to a statement by Spain’s Minister of Finance, María Jesús Montero, who rejected the notion of creating a fully empowered Catalan tax agency, akin to those existing in the Basque Country and Navarre. Such an agency had been a critical element of the deal that helped secure Salvador Illa of the Socialist Party as the next president of Catalonia. Montero’s comments have enraged the Catalan separatists, whose seven parliamentary seats are crucial to maintaining Sánchez’s fragile majority.

Montero attempted to clarify the government’s position, stating, “This is not an economic agreement nor a standard financial reform. Anyone suggesting otherwise is lying.” She also acknowledged that the agreement included a special financing system for Catalonia but stopped short of explaining what this entailed.

ERC’s spokesperson, Raquel Sans, issued a stark warning in a video statement, saying, “If the Socialists do not keep their word, the ERC will not support any of their initiatives. Either they [the Socialists] will need to find an alternative majority, or Pedro Sánchez will have to call an election.” She further accused Minister Montero of being “fully aware” of the agreements that allowed Illa to assume the presidency in Catalonia.

The ERC’s ultimatum comes just two months before the Spanish government is set to present its national budget for 2025. The potential fallout of this conflict poses a significant risk to Sánchez’s administration, which relies on a delicate balance of power within a coalition that includes various regional and left-wing parties. A budget impasse could destabilise the government and force early elections.

Meanwhile, the right-wing opposition People’s Party (PP) has sharply criticised Sánchez’s handling of the situation. The PP warned that the government is treading a dangerous path that could open a “Pandora’s box” of fiscal inequities across Spain. Juan Bravo, the party’s deputy secretary for economic affairs, cautioned that granting Catalonia “fiscal independence” could deprive the country’s other 16 autonomous communities of between €6 billion and €13 billion in funding.

“Citizens need to realise that we are facing a situation where services will be lost, and they will pay for it with their taxes,” Bravo declared. “This is the price Sánchez is willing to pay to remain prime minister.”

The tension between the central government and Catalonia stems from long-standing grievances over autonomy and fiscal control. Catalonia, one of Spain’s wealthiest regions, has repeatedly called for greater fiscal independence, arguing that it contributes more to the national economy than it receives in return. The existing fiscal model in Spain redistributes tax revenues collected by the central government to ensure equitable funding across regions. However, this system has been a source of friction between the economically stronger Catalonia and the central government in Madrid.

The deal struck between the Socialists and ERC initially allowed Catalonia to gain autonomy in tax collection and distribution, a significant shift in Spain’s fiscal structure. However, with the central government now backtracking on these promises, tensions have risen to a boiling point.