How much time can a country stay afloat when it runs an annual deficit of around 7% and its national debt is nearly 100% of GDP? The situation in Spain is not sustainable and we cannot afford to wait until the next Prime Minister takes office to fix it. With the budget careering out of control, the government does not have the tools it needs to fuel growth and combat unemployment.
Cristóbal Montoro has forgotten that these were his main objectives when he took office. The numbers speak for themselves. In the first 8 months of 2013, the national government passed its 3.8% annual deficit objective by eight-tenths of a point. The national budget wavered as Spain made money and paid the bills, but it is still unlikely to meet the objective that the EU set for this year.
Minister Montoro is banking on getting lower debt interest rates and increasing revenues in December after not having to pay civil servants their holiday bonus. The budget cannot be trimmed by counting on hypothetical growth and taxation while not making necessary spending cuts. The Finance Ministry seems to think that they have run out of time to make reforms, because it is not talking about making new changes to the tax system or public administrations.
Regional governments, which are for the most part meeting their deficit goals, are following the opposite strategy by lower taxes. But some of the tax reductions form part of a strategy to win upcoming regional government elections more than an effort to overhaul the tax system. Valencia will offer tax savings in 2015, but is delaying payments to its service providers at the same time. Considering this backdrop, Rajoy's statements that Spanish GDP will grow this year does not take into account that an unbalanced budget will undermine growth and cripple the government.