Austerity measures bring state budget down to three per cent

CAUTIOUS, PRUDENT and sensible aptly describe the Portuguese State Budget for 2008 unveiled by the Finance Minister Fernando Teixeira dos Santos last week.

Most economists and independent market analysts across the board said the budget was realistic and in line with current government fiscal policy to reduce public spending, curb consumer spending, limit borrowing, liquidate national debt, and keep growth rates from crawling to a standstill.

Unveiling the budget at the Ministry of Finances, Teixeira dos Santos painted an optimistic if cautious picture for positive economic prospects in 2008.

He said Portugal would reach its goal of government spending deficit at three per cent in line with the European Union’s Growth & Stability Pact.

The Minister also announced that Portugal’s public debt would shrink 64.8 per cent in 2006 to 64.4 per cent in 2007 and around a projected 64.5 per cent in 2008.

However, tight fiscal policies and continued high taxation would hurt private consumer spending and company investment, especially if the European and world economic cool-down continued into next year.

This meant that Portugal’s growth rate could be more sluggish than expected, registering a modest 2.2 per cent in 2008 rather than the initially optimistic 2.4 per cent predicted.

The Finance Minister said the treasury would also benefit from the sale of public assets netting an estimated 900 million euros.

However, not all analysts agreed it was necessarily a good budget for Portugal in the medium or long term.

Parliamentary deputy and Banco Espírito Santo economist, Miguel Frasquilho, stated this week that “this budget doesn’t serve the interests of the country.”

“As a budget it’s going in the wrong direction and is one of consolidation and debt reduction only,” he said.

Frasquilho believes that the main thrust of the Finance Minister’s fiscal policy to “cut, cut and cut”, while concentrating on receipts and high taxation, is “punishing the economy, families and companies” while the crisis in the credit markets would only make matters “worse.”

The economist said that macroeconomic climate could call into question Portugal’s fragile economic recovery while growth rates of 2.2 per cent were “not realistic.”

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