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Achieving deficit target will be difficult, says MP

Further austerity measures may be necessary, says minister

By ANA TAVARES [email protected]

Portugal’s budget deficit reached €3.2 billion in March, the equivalent of 7.9% of Portugal’s Gross Domestic Product (GDP) and representing a year-on-year increase of four decimal points (7.5%), according to the data released by the National Statistics Institute (INE) last week.

This means that the budget deficit in the first quarter of 2012 has actually worsened compared to the same period in 2011. In the words of the Social Democrat PSD MP Miguel Frasquilho, achieving a deficit target of 4.5% by the end of the year will now be “much more difficult”.

Minister of Finance Vítor Gaspar had admitted that Portugal faced “a significant increase in risks and uncertainty” regarding the budget deficit at the end of a meeting with his eurozone peers two weeks ago, but he is now faced with the tough challenge of reducing the country’s deficit by over 3.4 percentage points until the end of the year.

Although he said in Parliament last week that “at the moment, the Government is not contemplating additional measures”, he did recall that the Memorandum of Understanding with troika leaves room for the Government to implement further measures if necessary. He also said the Government was “determined” not to fail the deficit target.

A little over a year ago, when Passos Coelho became Prime Minister, the budget deficit stood at 7.4%, which led the new Government to anticipate some of troika’s initiatives and to implement an extra tax on Christmas bonuses.

The year ended with a budget deficit of 4.2% of GDP, but not before the Government transferred the banks’ pension funds to the state, which meant an added revenue of almost €6 billion.

Now with an even larger budget deficit in the first quarter of the year, a drop of 3.5% in fiscal revenue (instead of the Government’s estimated 2.6% increase) and a rise in the number of unemployed people, MP Miguel Frasquilho says that the risks and uncertainty “are very big when it comes to the evolution of fiscal revenues, social contributions and social benefits”.

He added: “Regarding public expenses – and here we have more positive news – they have fallen year-on-year by 2.2%.”

Although it seems like the cut of holiday and Christmas bonuses hasn’t had an impact on the budget, according to Miguel Frasquilho, the primary expenses (minus interest) have decreased by 4.2%, which means that “expense targets, even without considering the most prominent measures taken in 2012, which will be felt in the second and third quarters of the year (with the cuts of the holiday and Christmas bonuses), are already decreasing more than what we had anticipated. This is a huge difference compared to previous years.”

The former Secretary of State for the Treasury and Finance also noted: “The Portuguese economy is adjusting at a higher rate than we had expected and the external deficit has significantly decreased in the first quarter of the year, now standing at 3.9% of GDP.”