A one percentage point decrease in unemployment helps the State Budget in 340 million euros

  • ECO News
  • 11 August 2017

If the unemployment rate continues to stand below the expectation for the end of the year, Centeno gets a 340 million euros' margin for the Portuguese State Budget.

For each percentage point reduction in the unemployment rate in comparison to what was planned in the Portuguese State Budget, the Government benefits from a margin of around 340 million euros in the deficit, which equals a 0.2 percentage points’ help. To assess the impact of the unemployment rate in the deficit ECO spoke to four experts, who asked to remain anonymous, and did the math.

In the 2017 State Budget, the Portuguese executive did the math assuming a 10.9% unemployment rate. When the Government presented the Stability Programme in April, it made a downward revision of that rate to 9.9%. And this Wednesday, Statistics Portugal revealed the unemployment rate for the second quarter of 2017 was 8.8%, meaning that, on average, the first semester of the year had a 9.5% unemployment rate.

This decrease in unemployment has two types of impact: in expense (if there is more employment, there are less subsidies to be granted by Social Security, which generates a relief in public accounts and) and in income (if people found jobs, there are more taxes being paid to Social Security, which generates more revenue).

Social Security saves 150 million euros on subsidies

To assess the impact on expense, some numbers need to be taken into account. Assuming the 2016 labor force, each percentage point reduction in the unemployment rate represents around 48,800 people.

In 2016, Social Security spent 1.5 billion euros in unemployment benefits, according to the General State Accounts; this adds up to an average 3,130 euros per unemployed person, per year.

Multiplying the 3,130 euros for the 48,800 fewer unemployed resultant from the one percentage point decrease in the unemployment rate, it can be concluded that Portugal saved around 150 million euros.

Taxes improve the State coffers in 190 million euros

In order to estimate the impact of the unemployment rate decrease concerning revenue, ECO is assuming that the unemployed found a job and will start paying Social Security contributions. The reference salary used was a monthly gross amount of 805 euros, the value the Labor Ministry considered for new salaried workers in October 2015.

When multiplying the gross salaries with the total to be paid to the Portuguese Social Security (34.75% — usually, 11% must be paid by the employee and 23.75% by the employer), for 14 months, it can be concluded that the overall revenue stands at around 190 million euros.