Portugal with a deficit of 5.4% in H1 due to the pandemic

  • ECO News
  • 23 September 2020

INE released this Wednesday the budget balance for the first half of this year. The government expects the deficit to exceed 7% of GDP this year because of the coronavirus.

The budget deficit stood at 5.4% of GDP in the first half of this year, in national accounts, according to data published this Wednesday by the National Institute of Statistics (INE). In the first quarter, the deficit had stood at 1.1% of GDP.

“Considering the first half of 2020, the balance of the general government stood at -5.4% of GDP, which compares with -1.2% in the same period of 2019,” INE announced. The government expects the deficit to exceed 7% of GDP this year because of the pandemic.

It should be noted that there was a significant worsening of the deficit from the first to the second quarter. According to the statistical office, the negative budget balance reached 4,858.2 million euros, equivalent to 10.5% of GDP. In the same quarter, in 2019, the deficit had been 2.2% of GDP.

This increase in the deficit in the second quarter was mainly on the revenue side, with a year-on-year fall of 10.5%, but also on the expenditure side, which increased by 6.5%. The pandemic crisis significantly affected both during the first half of this year.

“Concerning expenditure, current expenditure increased by 5.8% as a result of increases in social contributions (1.9%), compensation of employees (2.6%), subsidies (470.2%), reflecting the exceptional and temporary measures of economic activity support taken in the context of the COVID-19 pandemic, and in other current expenditure (14.1%)”, explains INE.

On the revenue side, “the change of current revenue was due to decreases in almost all of is components, namely on taxes on production and imports (-18.7%), social contributions (-7.7%), sales (-21.7%) and other current revenue (-18.2%), closely linked to the decrease in economic activity bred by the COVID-19 pandemic, whereas current taxes on income and wealth rose by 12.6%.”

However, it should be noted that the budget deficit in the first half of the year may be even higher, depending on the failure of taxpayers to comply. That is, because of the possibility of postponing tax payments, INE had to make a temporal adjustment “which aims at bringing the period of registration of revenue closer to the period in which the payment obligation was generated,” as it had already done in the first quarter.