Spain criminal action for public overspending

Spain’s Minister of Treasury and Civil Services Cristobal Montoro

Spain’s new right-leaning government threatened criminal action yesterday against public officials who run up unauthorised deficits.
Budget Minister Cristobal Montoro issued the warning as the government sought to mop up red ink in the powerful regions by imposing greater discipline while also offering a new line of credit.
The government blames the 17 regions, still hurting from the 2008 property bubble collapse, for 15 billion euros (USD 19 billion) out of an estimated 20 billion euros in national budget slippage in 2011.
Prime Minister Mariano Rajoy’s government would introduce legislation to reform transparency in the public accounts, Montoro said in an interview with Cadena Ser radio.
“We are going to demand criminal responsibilities – criminal in the sense that a public manager, who could be a politician or a manager appointed by a politician, cannot spend more than the budget limit,” he said.
A government official overrunning the limit “is falsifying public accounts in the same way that a private manager has to face criminal responsibilities if he falsifies his company accounts, especially if it is listed.”
If a government wants to spend more money it should raise taxes and face the public’s reaction in elections, Montoro said.
“But what is not right is falsified bills in the drawer, the lack of transparency and running up debts which then become unpayable, which is what is happening now.”
A new line of credit to regions, whose size has not been decided, “could be open and ready in very little time, in a couple of months,” the budget minister said.
This financing from the Official Credit Institute would help the regions to pay overdue invoices to their suppliers, he said.
Many small businesses and self-employed suppliers were suffering because regional governments had not paid their bills, some even being forced to close, Montoro said.
The minister held a meeting with financial chiefs from the cash-strapped regions on Tuesday and offered them the line of credit in return for accepting greater budget discipline.
Besides the credit line, Montoro said the government would give the regions 10 years instead of five years to repay money owed to the central government, widely reported to be 31 billion euros (USD 41 billion).
Madrid also planned to bring forward other payments to the regions that were originally not due until mid-2012, a sum reportedly amounting to eight billion euros.
In return for the central government’s support, the regions would accept stricter budget controls, Montoro said.
The new rules will be brought in under budget legislation, which is to accompany a constitutional limit on budget deficits already passed last year, Montoro said.
Penalties on wayward regions could include “financial sanctions depending on the magnitude and repetition of the deviation [from budget limits] and could go as far as intervention,” he said.
“It could go as far as the central government, with the local or regional regional government, agreeing an economic recovery plan,” the minister explained.
Rajoy said Tuesday his government would approve urgent reforms of the budget, labour market, and banking sector in cabinet meetings to be held between January 27 and February 10.
The prime minister has said Spain’s public deficit will amount to the equivalent of about 8.0 percent of gross domestic product in 2011, missing the 6.0-percent target by a wide margin.
But he has vowed to meet the 2012 goal of reducing the deficit to 4.4 percent of GDP, even if that means he must find a way to lop an estimated 40 billion euros off the budget.