Portugal could fall short of the target budget
It was a blow that many had seen coming: the Portuguese Minister of Finance Vítor Gaspar announced last Thursday in Luxembourg that this year’s budget deficit may be at risk due to lower than expected fiscal revenues and the instability in the eurozone.
Speaking at the end of a meeting with his eurozone peers and unveiling one day sooner than expected the public data regarding budget execution in the first five months of the year, Vítor Gaspar said that Portugal faces “a significant increase in risks and uncertainty related to the budget estimates”.
According to the minister, the performance of fiscal revenue is “not positive”, particularly when it comes to VAT and IRC taxes, which have suffered a drop of almost 3% and 15.5%, respectively. These, according to Vítor Gaspar, have had “a less favourable evolution than expected as a result of the lower revenues achieved by companies in the context of prolonged recession”. However, IRS tax collection has increased by 12%, the first time it has risen during a recession since 1991.
The lack of effectiveness in tax collection also justifies some of the discouraging figures, as the fiscal execution reached 37.5% of the expected total, a number that fails to meet the execution average of the last three years: 39.8%. This gap alone means that there are between €800m to €900m awaiting collection.
Claiming that the Government is determined to meet this year’s deficit target of 4.5% of GDP, which is part of the adjustment programme required by troika, the Minister of Finance implied that the increase in risks and uncertainty Portugal faces is a direct consequence of the instability caused by the Greek and Spanish recessions in the eurozone.
Released officially the following day, the bulletin of the Directorate-General for Budget (DGO) provided more in-depth information regarding the minister’s announcement, showing that the increase in risks was not only prompted by a drop of 3.5% in fiscal revenue, but also by a rise in the number of unemployed people, thus reducing social contributions by 3.1%. According to the DGO, the total expenses have also increased by 3.4%, whilst interest has risen more than 80%. Simultaneously, the joint sub-sector deficit of the State and Social Security in the first five months of the year increased sixfold (from €194m to €1.238m) compared to the same period in 2011.
“We won’t take the initiative to ask for more money or more time,” assured Vítor Gaspar, whilst refusing to reveal if further austerity measures will be implemented. Instead, the minister highlighted that the expenses of the State and Social Security are under control, with a decrease of 7.3% in staff expenses.
Outside Parliament last Friday, the communist Member of Parliament Honório Novo said to journalists that the Minister of Finance has finally stated the “obvious” and that he finds it “astounding” that Vítor Gaspar insists on carrying on with the same austerity measures.