Regions to shore up finances with drastic 2012 budget cuts

Faced with growing pressure from Madrid to reduce their deficits, regional governments are planning significant cutbacks in public works investment for 2012. Twelve out of the 17 semi-autonomous regions that make up Spain have drafted or finalized their budgets, and these show an average 14-percent cut in public money for infrastructure, or 1.7 billion euros less than this year.

The decision represents a new setback for one of the main engines of job creation in a country with nearly 21 percent of its workforce sitting idle. But the central government wants to ensure that the country meets the overall deficit target set by the EU of three percent of GDP by 2013.

Few regional governments have dared to make cuts in social spending, and even fewer to raise taxes, with the exceptions so far of Andalusia and Aragon. Other parts of the country like Catalonia are experimenting with alternative formulas such as higher rates for water consumption and public transportation, steeper college fees, and a co-payment model for prescriptions obtained through the public health system.

With the year about to end, only six regions (Andalusia, Galicia, the Canary Islands, Valencia, the Balearic Islands and Madrid) have already presented their official budgets for 2012. Navarre, the Basque Country, Cantabria, Murcia and Extremadura have put forward drafts, while the rest have yet to do even that, alleging that they cannot estimate their expenses until they know exactly how much they will be getting from the central government.

Everyone is waiting for the incoming prime minister, Mariano Rajoy, to come up with some specifics. Economy Minister Elena Salgado advanced some figures in July, but admitted that these may not be the definitive ones.

A sharp drop in revenues and the 1.3-percent deficit target for the regions has pushed their governments to slash public investment. Although everyone insists that social services will remain untouched, the fact is that outlays will be reduced by 1.56 percent next year.