Economy to begin recovery in 2008 says Finance Minister

By: CHRIS GRAEME

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THE PORTUGUESE economy is set to begin recovering from years of stagnation and economic recession in 2008, claimed the Finance Minister Fernando Teixeira dos Santos.

Speaking in advance of the Portuguese State Budget for 2008, which will be delivered to the Portuguese Parliament for discussion and eventual approval on October 12, the minister promised, in an interview with RTP 1, that the country’s GNP would grow from 1.8 per cent by the end of this year to a projected 2.4 per cent in 2008.

Speaking in the programme Grande Entrevista, the minister said that the State Budget for 2008 (Orçamento de Estado 2008) and the government’s fiscal policies for the coming year would be based on:

A strict evaluation of public accounts undertaken against a backdrop of macroeconomic realism.

That it would be a transparent and honest document, without any tricks such as hidden sub-budgets or extraordinary receipts.

A budget that would safeguard the government’s political objectives without ‘blind cuts’.

A budget and corresponding fiscal policy based on effective tried and trusted financial controls.

A fiscal and budgetary policy which defined objectives and adhered to a strict timetable for their implementation.

The Finance Minister also said that the government would continue its policies of public spending reduction and containment, and the reduction of government interference in the economy.

Teixeira dos Santos also said the government would continue to improve the quality of its spending in public investment schemes and projects, which included investing in human resources and education, and helping to small and medium sized companies (SMCs) which formed the backbone of the Portuguese state.

He also talked about reforms to the country’s social security system (Segurança Social), through promoting the right conditions for the system in the long term.

Social security

In future, the social security system is to be financed directly from the state budget and not just from the receipts from tax payers and employer deductions. “Despite the present instability caused by the credit crunch resulting from the high risk housing lending market (sub-prime) in the US, this government doesn’t have any reasons to change its forecasts for the GNP which should end up at 1.8 per cent at the end of this year and increase to 2.4 per cent by 2008,” he said.

However, the minister said it would be “jumping the gun” to predict three months before the end of the year that the government would be able to bring the public deficit below the three per cent stipulated by the European Union’s Growth and Stability Pact, but believed it was likely to stand at around 3.3 per cent.

On administrative and public service reforms, Fernando Teixeira dos Santos said that, up until August this year, salaries had only increased by 0.5 per cent while staff had been reduced by 14,000 through natural wastage and early retirement.

“Reforms in the Public Administration are moving at full steam ahead with reductions in the number of departments by 30 per cent and managers by 25 per cent”, while around 3,100 public sector staff would be put onto a special mobility regime which meant they can be moved from one department to another where they are most needed.

Regional government

However, the government’s proposed reforms for local and regional government which are set out in the State Budget for 2008 are likely to be more controversial.

The Finance Minister and government is trying to push through parliament new Local and Regional Finance Law aimed at reducing spendthrift municipal councils (Câmaras) and encouraging them to live off their own means through better management and business practices (read article ‘Cash-strapped Câmaras unable to pay their debts’ on page 5).

The new laws would effectively stop Câmaras from running cap in hand to the banks or government when its budget is overspent, effectively capping them in the same way that the UK’s Conservative government under Margaret Thatcher controlled local authority spending in the 1980s.

On October 2, a deputation from the Portuguese Association of Municipal Councils, Associação Nacional de Municípios Portugueses, is to meet with President Cavaco Silva to fight the new laws, claiming Câmaras will be ‘strangled and suffocated’ by the proposed reforms.

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