There was a plan B after all, worth a cut of 445 million in expenses

  • ECO News
  • 18 October 2016

This Monday, the Portuguese minister of Finance sent the European Commission the accounts on the additional fiscal consolidation measures, applied in the 2016 State Budget.

At last, there is a number for the famous Plan B of additional fiscal consolidation the EC always imposed on Portugal for 2016, in order to comply with the goal for the deficit: 445 million euros. This is the amount of additional cuttings Mário Centeno, minister of Finance, imposed on services since July. This value is indicated in the Effective Action Report, handed this Monday over to Brussels.

Plan B’s accounts can be found here. According to the minister of Finance, the strategy of freezing appropriations to force effective cutbacks in expenditure not only worked, but has had a 66.2 million euros margin of safety.

But firstly, it is important to define appropriations. Appropriations are a sort of forced saving: the expense is approved by the Parliament, but instead of the allocated money being distributed by the services, as it happens on the remaining budget, the Ministry of Finance holds it and its execution becomes dependent upon the approval of minister Mário Centeno.

When, within the process of sanctioning Portugal, the government was forced by the European Commission to present additional measures, the minister of Finance committed to permanently freeze part of those appropriations – this was the famous Plan B of additional austerity, a plan the government never assumed in Portugal as such.

Now, in the Effective Action Report, Centeno presents the accounts of that external consolidation. The minister reveals the 2016 State Budget was built with a total of 1,572.5 million euros in appropriations’ value. Out of this value, 445 million euros are permanently frozen – and both line ministers and services are aware of it.

"Hence, the line ministries and all the respective services have been informed that the concerned appropriations would remain frozen and that the Ministry of Finance would not authorize their release. The services have also committed to a lower final expenditure ceilings, thus increasing ownership of the measure.”

Effective Action Report, p.7

The allocated money permanently frozen corresponds to cuts in expenditure of goods and services, the government explains.
Mário Centeno assures that up until August only 461.3 million euros of the granted amount had already been used, still having a maneuver margin of 666.2 million euros. From this amount, 85.1 million euros are still available to reinforce employees’ compensation.

Besides, this measure is assured to have allowed compensations for the relevant budgetary deviation negative impacts, caused by two “one-off events”, referred in the Report, which are:

  • Oitante, a spin-off of Banif resolution, that “will post worse than expected results”;
  • Silopor and IP Telecom concession will not take place, “contrary to the initial budged forecast”.

António Costa predicted a 2.4% deficit for 2016 and a structural consolidation of 0.2 percentage points. The Portuguese government was recommended by the Commission to cut the deficit to 2.5% this year and obtain a zero structural balance.