If economy gets worse government will increase budget deficit
The government forecasts a budget deficit of 0.9% of gross domestic product (GDP) for this year, while the public finance council estimates it will be 0.6%.
Portugal’s minister of finance, Fernando Medina, said on Friday that the government is not stuck to this year’s budget deficit target and will allow it to be higher if economic developments are not favourable.
“If it does not go so well, we will not stick to the objectives in budgetary matters and we will let the automatic stabilisers float,” he said, noting that in that case the deficit could be higher than the government expects for this year.
Automatic stabilisers correspond to budgetary variables, both on the revenue and expenditure side, that react automatically to developments in the economy, which have an impact on the budget balance. For example, when the economy is worse, unemployment increases and, therefore, expenditure on unemployment benefits increases and revenue decreases, which has an impact on the budget, but, in theory, minimising the impact of the bad economic moment.
“In times of difficulty, the stabilisers work and the deficit can operate within the margins that the treaties allow and so the state supports the economy which prevents a possible crisis from deepening,” he said.
However, Medina believes that it will not be necessary to reach that moment.
He had been asked about the 2022 deficit, which was below the government’s forecasts, and whether the same could happen this year.
The government forecasts a budget deficit of 0.9% of gross domestic product (GDP) for this year, while the public finance council estimates it will be 0.6%.
This week the government was surprised that statistical authorities decided that spending of €1.4 billion in support to ease energy costs for businesses will have to be included in the 2023 accounts. Moving that expenditure to 2022 also impacts the 2022 accounts, and a better-than-expected deficit was released today.
The national statistics institute (INE) today reported that the 2022 deficit stood at 0.4% of GDP, below the 1.9% forecast by the government.
On whether a rectifying budget will be needed to accommodate the measures announced today, Medina said that “there will be no rectifying budget” and that the said measures will be framed within the current state budget.
