State Budget for 2021 already has two billion in expenditure

Negotiations on the 2021 State Budget only resumed last week, but the government and parties already have to rely on a negative impact of almost two billion euros of old measures on next year’s budget balance. The Ministry of Finance’s Policy Framework for 2021, to which ECO had access, shows that, without doing anything, public expenditure automatically increases by 2.1% in 2021.

“The budgetary balance is projected to deteriorate over 1,950 million euros by 2021, which implies an overall increase in expenditure next year of around 2.1 percent, compared to 2020,” says the team of the Finance Minister, João Leão, in the document that was delivered this Monday to the Portuguese Parliament, under the new Budgetary Framework Law (LEO) that came into force in July.

This is a document in which the government reveals what happens to the budget balance, both on the revenue and expenditure side, if nothing is done – i.e. in invariant policies – in the next Budget. The impact comes not only from measures legislated in the past, which become constant for future years (unless they are revoked or amended), but also from the “structural evolution of expenditure that does not depend on the economic cycle,” the Ministry explains.

Thus, on the expenditure side, an automatic increase of 2,083 million euros and savings of 174 million euros in interest on public debt and road PPPs can be identified. On the revenue side, there is no increase, with a 47.3 million euros reduction in the NHS primary health care rates. Taking into account the opposite effects, the impact on the 2021 budget balance is negative, in the order of 1,956.4 million euros.

The biggest increase in expenditure from the past is related to structural investments, amounting to 590 million euros, which are only considered to be multi-year investments, in contracting or exception, whose value exceeds 0.01% of public expenditure. To these must be added 102 million euros of local works that are foreseen in the government’s Economic and Social Stabilisation Programme (PEES).

The second-biggest increase in expenditure is because of pensions, with a rise of 457.1 million euros in 2021. According to the Ministry, most of this increase is justified by the increase in the average pension and the relation between the inflows and outflows of pensioners. The extraordinary pension update in 2020 will have a carry-over effect of 47.8 million euros in 2021.

Personnel expenditure will then rise automatically by 410.8 million euros next year. The biggest part of this increase is because of progressions and promotions, worth 231 million euros, followed by expenditure on teachers and other special careers, worth 201 million euros. New hires in progress should cost a further 75 million euros. Finally, expenditure on staff at Braga Hospital – whose PPP has ended, returning to public management – will cost a further 2.8 million euros.

Outside this analysis are the temporary and extraordinary measures adopted in the wake of the pandemic crisis, such as the simplified layoff, “as well as impacts or effects resulting from the automatic stabilisers of the economy (e.g. increase in unemployment benefit or decrease in tax revenue),” explain the Ministry of Finance.