Opinions Budget Portugal

Portuguese Budget Proposal 2017: Another Step Towards Consolidation

An analysis by João Paulo Correia

"Portugal" (CC BY-SA 2.0) by chilangoco

Within a compact overview, Vice-President of the Socialist Group at the Assembleia da República João Paulo Correia depicts the point of departure of the current Portuguese Government and points out the main objectives for 2017. The ambitious budget proposal aims to combine financial consolidation, growth and employment enhancing policies and improvements in pensions and social security.

In October 2016, the 21st Constitutional Government of Portugal presented the Budget Proposal for the coming year. The budget proposal is progressive, fair and responsible, complying with the Government’s Program and the country’s international commitments. 
Since the start of its mandate, the Government had to find solutions to serious problems Portugal had to face, namely

  1. the possibility of EU sanctions due to the lack of effective action taken by the previous Government,
  2. the exit from the Excessive Deficit Procedure, which was not reached in 2015; and
  3. the re-launch of investment, which had an abrupt break in the second half of 2015.

It is necessary to think about the future of Portugal, which means to continue the measures that were launched in 2016, so that budget execution may be regarded as a source of accomplishment for the current Government.
 The Budget Proposal for 2017 sets forth the lowest Portuguese deficit and, simultaneously, reinforces social policy and promotes the acceleration of the economy with a rapidly growing labour market.

Since 2011, it has not been possible to observe, all together, a reduction of unemployment or an increase in employment and in the active population.
 After the deficit of 2.4% in 2016, which will be the lowest value in the Portuguese democratic history, the deficit will again fall to 1.6% in 2017. Public debt will decline to 128.3% of GDP. The primary balance maintains its trajectory of surplus accumulation and is projected to reach 2.8% of the GDP in 2017, an improvement of 0.9 pp compared to 2016. Families, investment, the social state and knowledge are the main areas of activity of the current government.

The path chosen for the 2017 Budget continues the recovery of household incomes. With the elimination of the IRS surcharge, the Government continued to reverse the policy of raising taxes that has contributed to the decline in household income for years. Aiming at the recovery of income, the Government enabled a real increase in pensions.
The state must also provide the appropriate tools to promote investment and economic growth. It is therefore important to promote the soundness of businesses, to create more innovation and to increase the competitiveness of national production.

The Government of Portugal is focused on boosting investment. The acceleration of the implementation of the European Structural & Investment Funds will allow the increase of private and public investment in the economy.
One of the objectives of the budget proposal is the allocation of € 1 billion for business incentives by the end of 2017, continuing the results achieved in 2016, and reinforcing investment in medium and high technology industries.

The Government will also strengthen public investment by 750 million euros in the 2017 state budget.
It is a priority to overcome structural blockages, such as the low capitalization of companies or the low level of innovation still existing in the national business structure. As has already happened in 2016, less taxes will be paid for every euro of wealth produced in the country in 2017, due to the reduction of the tax burden. The budget proposal recognizes the need to strengthen the economic and financial situation, despite the undeniable evolution registered since December 2015, as pointed out by international institutions.
 Portugal has now more investors in public debt and more foreign direct investment in non-financial companies.

The indicators of activity are in the upward direction, deriving from a general improvement in economic activity, such as the recovery of exports of goods. 
In conclusion, Portuguese Government’s commitment to the implementation of the State Budget for 2017 should be highlighted, since it will enable the country to reduce the deficit, debt and the weight of taxes in GDP while improving family income and social protection as well as promoting investment and sustainable economic growth.

João Paulo Correia is Vice-President of the Socialist Parliamentary Group at the Assembleia da República and Coordinator of the Financial and Budgetary Affairs Committee.