Spain's refusal to Catalonia's new tax regime opens door to early vote

The leader of Catalonia's regional government hinted on Thursday at holding early elections after his call for greater tax autonomy was rejected by Madrid.

Artur Mas's conservative Convergence and Union (CiU) party would likely win an absolute majority in elections, strengthening his mandate to press on towards independence and delivering a blow to Prime Minister Mariano Rajoy who has called for national unity to counter the debt crisis.

Speaking in Catalan live on television after a meeting with Rajoy, Mas said he was disappointed by the talks. "The prime minister told me there is no room to negotiate a fiscal pact with Catalonia and that his answer will be 'no' in the coming weeks and months," he said.

"If the negative answer to the fiscal pact is so obvious, then we will have to take decisions in the next days," he said. When asked about the possibility of calling early elections, he said: "All options are open."

The matter could be decided next week when the regional parliament holds its annual debate on the state of Catalonia, he said.

Spain's deep economic crisis has fanned an independence movement in Catalonia, which has its own language and produces a fifth of Spain's economic output.

An early election would be a fresh problem for Rajoy, who is dealing with a recession, high unemployment, high borrowing costs and a looming international rescue package with tough conditions.

"Prime Minister Rajoy has expressed his opposition to the proposal of an economic agreement for Catalonia because it would not be constitutional," the prime minister's office said in a statement after the meeting with Mas.

Anger deflected

The Catalans lay claim to some 16 billion euros they say they raise in taxes every year but go to other regions and the central government.

Spain's 17 regions are largely self-governing, but under a complex tax system they turn over most taxes they collect to the central government which then shares them back out to the regional governments.

Mas has enacted harsh spending cuts in Catalonia to bring down the region's large budget deficit.

He has managed to deflect anger over the cuts by blaming the central government for not instituting a fairer tax system. More than half of Catalans say they want a separate state, and hundreds of thousands marched in Barcelona last week – the biggest ever such show of separatist fervour - as resentment over austerity measures and taxes grows.

Mas said Rajoy was receptive to looking into how the regions might benefit from the leeway Spain has received from Brussels - which has conceded more time for Madrid to get its deficit under 3 percent of gross domestic product and allowed higher deficit targets for 2012 and 2013.

Rajoy had previously threatened to intervene in regions that do not meet their own deficit targets. Catalonia is struggling to meet its goal this year.