Portugal: Budget deficit in 2019 may be ‘slightly’ below 0.2%

Portugal’s finance minister, Mário Centeno, has told Lusa that the 2019 public sector budget deficit may be “slightly” below 0.2% of gross domestic product, thanks to a higher-than-expected value-added tax take, and the government will inform the European Union of the new target on 15 October.

“We have a deficit in the first half of 0.8% [of GDP] which is likely to result in an annual deficit very close to 0.2%, possibly slightly lower, but certainly not greater than 0.2%,” Centeno said in an interview with Lusa.

Last year’s deficit was, he noted “one tenth [of a percentage point] better than we had designed in the stability programme.

“Technically, as we say in slang, we can drag this tenth … into 2019, if all else remains constant,” he explained, adding that there had also been a “revolution” in the structure of Portugal’s economic activity.

“It is possible that we can do something better in the projection of some variables to the end of the year, given the new basis, shall we say, of the national accounts and public accounts,” he said.

On Monday the National Statistics Institute (INE) cut by 0.10 of a point its calculation of the deficit for 2018, to 0.4% of GDP. It also reviewed the expansion of the Portuguese economy in recent years, following the new national base of accounts, with 2016 as the baseline, which led to the incorporation of new information and the revision of several values which, in the case of 2018, are as yet provisional.

“On 15 October, we will send to Brussels a new budgetary plan in constant policies, fulfilling … the European rules,” said Centeno. “And then we can update the 2019 accounts in the light of information which, however, we learned of on Monday.”

Centeno stressed that the government has projected the public accounts in line with procedures for which he sought authorisation in parliament last year.

“If, in the end, they come out one tenth better, or less than a tenth better [I don’t know]; the only thing I can guarantee is that they won’t come out worse,” he stressed.

Asked about the fact that budgetary developments of the second half of the last years were always better than in the first half, the minister and Socialist Party (PS) candidate in the 6 October general election said that the second half of this year “will be” better, too.

Centeno said that the government has “a projection of the execution of expenditure that is fully aligned with what was presented in parliament and reiterated in April in the stability programme” sent to the European Commission. The current projection of revenue is now above what was originally foreseen, he added.

“These receipts are receipts that are only valid when the year closes,” he stressed. “And VAT, for the purposes of national accounting, only ends in March 2020.

“I have exactly half a year of VAT in my tax revenues. I expect no divergence in the coming months,” he said, adding that the last two months of the calendar year are those with the most VAT revenue.

On Thursday officials released the figures for budget execution for the first eight months of this year, with a surplus of €402 million, or €982 million better than the same period of 2018.

Asked whether, in the face of the global economic slowdown, Portugal is in a position to use budgetary policy to mitigate this slowdown, the minister said yes.

“We have the margin to keep all the measures we have of public investment because they are in the stability programme that is compatible with keeping the country in this medium-term goal,” he said. “We are able to comply with all social programmes, in particular the Social Security Bases Act.

“There is no reason, in this context, to have any punitive action for the economy through taxes,” he added.

On whether there is scope to fulfill PS electoral promises, in terms of cutting tax and increasing the pay of public servants, Centeno also answered in the affirmative.

In the interview with Lusa, Centeno hailed the latest economic figures, published on Monday by the INE, which showed that GDP grew 3.5% in 2017, or 0.7 more of a point that previously announced, and 2.4% in 2018, 0.3 of a point more than reported.

Centeno noted that “Portuguese per capita income is now higher than twenty thousand euros for the first time and has grown more than four percent, year by year, since 2015” – a sequence of annual growth that has never been seen before in Portugal.

According to the INE, GDP per capita reached almost €20,000 in 2018, with nominal growth rates of more than 4% since 2015 and growth in disposable income of households since 2015. The highest growth was in 2018, at 4.4%.