7 key numbers to understand the Portuguese 2017 State Budget

The report on the State Budget for 2017 brought forward last Friday night is a document filled with numbers: the most important ones for the Portuguese economy are big, but the small ones are those who will impact on the everyday life of the Portuguese people. Having the two criteria in mind, ECO chose seven numbers to help you remember the essential points of the 2017SB.

• 1.5%

It is unanimous: economic growth must accelerate. The government revised the goal for this year downwards from 1.8% to 1.2%. This downward revision translates in a deceleration of GDP compared to 2015, when it increased 1.5%. This is the same number Mário Centeno, minister of Finance, set for next year’s growth. According to government’s projections, this goal is essential because it will help improve two other variables: deficit and public debt. The minister of Finance is counting on investment and exports to boost economic growth. In 2015, exports grew 6.1%, and in 2016 there is an anticipated deceleration of 3.1% increase, but Centeno believes exports will grow with a 4.2% rise in 2017, which is still inferior to the 4.9% goal set by the Stability Programme presented in April.

• 1.6%

After also reviewing upwards the 2016 deficit (from 2.2% to 2.4%), Mário Centeno announced the goal for 2017 would be 1.6%. Much like the 2.4%, this 1.6% goal – if it is to happen – would be unprecedented in the Portuguese democracy. The numbers comply with the demands made by the European Commission and would allow Portugal to be excluded from the Excessive Deficit Procedure, which has already brought the fear of sanctions and can also terminate the flow of the EC funds. Monitoring deficit and public finances has been, so far, the main focus of the socialist government.

• 10.3%

This is the goal set for the 2017 unemployment rate combined with 1% employment creation. This is the government’s greatest victory, because even with 1.2% growth, the labor market improved in their predictions. In the press conference where Mário Centeno explained the State Budget, he repeated often what a victory this was, emphasizing the outlook is better than what the 2016SB and Stability Programme predicted.

• 34.1%

This is the value of tax burden, or in other words, tax revenue and effective social contributions divided by GDP, in 2017. This number is not mentioned in the 2017 State Budget report, but it is shown in the website the government created to explain the SB to Portuguese citizens. The website mentions a slight decrease of 0.1% in tax burden compared to last year, a number used by Mário Centeno to assure this is a “tax stability” Budget.

Furthermore, Mário Centeno has been stating in interviews subsequent to the presentation of the SB that the 2017 new tax revenue only represents 0.5% of the overall taxation:

"The proceeds from the new taxes is 0.5% of the overall charged taxes; 99.5% comes from already existing taxes that will not be changed.”

The minister of Finance mentioned many times, as an answer to journalists, this is a “tax stability” Budget. But this expression is yet to be confirmed, since taking place will be: an additional Municipal Property Tax (IMI – Imposto Municipal sobre Imóveis); a fat tax on soft drinks; an increase on Single Road Tax (IUC – Imposto Único de Circulação), a tax rise for the most polluting vehicles; and a special programme for debt settlement with interests forgiveness.

• 600

This is the magical number for property owners. The “new IMI” will mean a 0.3% charge applicable to values surpassing 600 thousand euros, but there are exceptions and nuances. Meanwhile, the government is available to clarify this addition to the Property Tax. What is already known is that taxpayers with debt and with property that exceeds the registered value will not only pay the rate regarding the excess, but also on the overall value of the property. The predicted revenue is of 160 million euros and will be earmarked for the Social Security Financial Stabilization Fund (FEFSS – Fundo de Estabilização Financeira de Segurança Social).

• 21.9%

This number was announced by Mário Centeno in the press conference for the public investment growth on account of community funds of the programme Portugal 2020. This number compares and is influenced by (for being compared to a homologous period) the decrease predicted for 2016: -16.1%, which means the starting base is low. In total, the government foresees a 3.1% growth in investment compared to the now predicted -0.7% for 2016 and inferior to the 4.8% contained in the Stability Programme.

• 128.3%

The public debt ratio as a percentage of GDP will plummet after an increase in 2016. But this does not mean there is less debt – quite the opposite. What happens in 2017 is the forecast that nominal GDP will grow in a larger pace than the central government deb. In 2016, it is anticipated that the percentage will be of 129.7% GDP, dropping to 128.3%, lower than the 2015 ratio of 129%. But in gross terms, public debt will increase. This means there will actually be more debt to pay in the future: over 9.2 billion euros next year, an increase of around 3.9%. The forecast of the State’s overall direct debt will go from 238.7 billion euros in 2016 to 247.9 billion euros in 2017. The interest payments of public debt should also increase significantly (3.5%).