The Spanish national government insists that it will permit zero flexibility for changing regional government debt limits, which will remain 1.5% of GDP for all regions. Advisers from the regions that attended a recent meeting with the Cabinet knew that they were going to get a spending cap and be asked to reduce the number of public companies that they have been promising but not delivering on for the past year and a half. Not to mention the fact that regions did not comply with the 2011 budget objective and increased spending due to May elections.
And now there is no time left. The national government has offered them help through raising the IRPF tax and a plan that will allow them to pay off service providers. But these efforts are not enough. Regional governments that will have to tackle healthcare copayment expenses, dismantle public companies and television stations, and possibly lower government employee salaries further yet, which would be the bulkiest and most difficult expense to address.
Each regional government should approach its cutbacks with transparency so that citizens understand the cutbacks and they realize that their governments have regained control of its finances. Still, mostly at the fault of Andalusia, there is no plan to restructure redundancies, efficiencies, synergies, discretionary spending and even the development of Spain's ability to foster competitive labor markets. The national government should have tried to enact a plan that would streamline all government operations, not just erect a spending cap.
The regional governments are not innocent, but it is easiest for Rajoy to not intervene too much and to leave them to their own devices to cut public spending.
