An overview, as criticism abounds
Lusa news agency has drawn up the ‘essential points’ of the government’s revised State Budget for 2022 – debate over which is scheduled for later this month (but which has already been roundly attacked by parties of the opposition):
The Portuguese economy is expected to continue to recover this year, but the uncertainty caused by the war has forced the government to cut growth to 4.9% and launch measures worth €1.8 billion to mitigate rising prices.
In the draft 2022 state budget (OE2022), delivered to parliament yesterday, the government revised its projection downwards, by 0.1 percentage points, in relation to the macroeconomic scenario presented in the Stability Programme (PE) for the period 2022-2026 (released on 28 March) which pointed to growth of 5% in 2022.
In the OE2022 proposal originally delivered last October, growth was predicted at 5.5%.
The team led by finance minister Fernando Medina says this new document “is presented in a context marked by the recovery of the Portuguese economy and the challenges and uncertainty resulting from the military invasion of Ukraine by Russia“.
He said that the new growth projection, together with a reduction in spending associated to emergency measures adopted during the pandemic, should make it possible to reduce public debt to 120.7% of Gross Domestic Product (GDP) from 127.4% in 2021 and the budget deficit to 1.9% of GDP, a downward revision from the 3.2% forecast in October – but maintains the target set in the 2022-2026 Stability Programme.
The new proposal also maintains the scenario for the labour market set out in the PE, with an estimated unemployment rate of 6% for this year, a downward revision from the 6.5% forecast in last October.
As the Government explains, geopolitical tensions resulting from the Russian invasion of Ukraine “have aggravated inflationary pressures” through an acceleration in the price of fuel, energy raw materials and several primary goods.
To mitigate the impact of inflation on the economy and protect the purchasing power of families and the production conditions of companies, extraordinary measures – such as the reduction of the ISP (fuel tax) equivalent to a reduction in the VAT rate from 23% to 13% – are being introduced.
In terms of taxation, two new IRS (personal income tax) scales have been created, splitting the 3rd and 6th scales with a view to giving middle income groups slightly more ‘money’ (nb. albeit inflation is reducing its value).
The main measures set out in the government’s proposed state budget for 2022 are as follows:
The number of income brackets subject to IRS will increase from seven to nine.
The two new brackets cover income between €10,736 and €15,216, which is taxed at 26.5%, and income between €15,216 and €19,696, taxed at 28.5%.
The IRS regime is extended for two more years to allow young people to benefit from a discount on the tax, also extending it to self-employment.
The government intends to extend until 2023 the Regressar (return) Programme, which grants tax incentives to emigrés who want to return to Portugal, and the new OE2022 proposal brings a solution for those who returned in 2022.
Companies will no longer have to make the special payment on account (PEC) of IRC. This measure responds to the demands of several business confederations and associations and aims to give companies more liquidity, especially smaller ones.
Pensioners who receive up to €1,108 per month will have this year an additional increase of up to 10 euros retroactive to January.
This increase had already been announced by the government and will cover around 1.9 million pensioners and will cost €197 million, according to the presentation by finance minister Fernando Medina.
In 2021, the special increase was paid to pensioners receiving up to €658.
Spending here is budgeted at €2,241.9 euros, which represents an increase of 9.7% compared to the provisional budget execution of 2021, “thus ensuring the continuity of the reinforcement in the expansion of the national network of integrated continuous care (RNCCI) and the reinforcement of expenditure associated with cooperation agreements with the third sector.”
In the 2022 budget, €58.4 million is considered for the Recovery and Resilience Plan (PRR), covering several social responses.
On the issue of poverty, support of €60 per vulnerable family will be allocated to compensate the price increase of staples, and €10 per bottle of gas will be extended from households benefiting from the social energy tariff to all households covered by minimum social benefits.
In parallel, European funds will be mobilised to support Ukrainian refugees, in particular with accommodation costs.
The subsidy to support informal caregivers will be extended to the whole country, with €30 million foreseen for this measure.
The government also intends to ensureeffective monitoring by reference professionals of social security and health, and the extension to other measures such as access to the social tariff of electricity and natural gas, equating informal caregivers who receive support allowance to other beneficiaries of solidarity benefits. The aim is also to ensure that informal carers can be given priority when attending public services
DAY CARE CENTRE AND INFANCY
Free day-care centres, which will be implemented progressively over the next three years, will cost €16 million euros this year. From the next school year, crèches will be free of charge for all children who enter with a cooperation agreement with social security. In this first year, children up to the age of one will be covered. In the following school year, it will be extended up to two year olds and in 2024/25, it will cover children up to the age of three.
The Childhood Guarantee is a new benefit created by the government to ensure that all children and young people under the age of 18 in extreme poverty receive €1,200 per year (€100 per month).
This guarantee is a complement to the family allowance and implementation of the measure will be phased in over two years (2022 seeing payments of €70 per month (€840/year), 2023 seeing €100 (€1,200 /year).
These measures estimate that around 500,000 children will be given extra protection, with a global impact of €140 million in 2023.
According to budgetary proposal, the measure has a transitory provision that foresees the complement will be paid for the first time in the first quarter of 2023.
Funding for the National Health Service (SNS) is to increase by €700 million – an amount identical to that provided for in the OE2022 delivered in October last year (and rejected in parliament). The government says this financial ‘reinforcement’ is intended to “quickly recover health care activity, through the hiring of additional health professionals and the gain of autonomy of health services to hire missing professionals”.
The health budget programme provides for total consolidated expenditure of €13,578.1 million, which exceeds the provisional execution of 2021 by 5.6% – and an actual consolidated expenditure of €13,529.4 million, identical to the figures in the rejected proposal at the end of 2021.
The SNS State health service will be run by an executive board – a new body to coordinate the healthcare response to patients and monitor its performance.
According to the budgetary proposal, this executive board will have the “role of directing the SNS at central level, coordinating the healthcare response of health units, ensuring their networked operation and monitoring their performance and response.”
The sum provided in the OE2022 for basic and secondary education and school administration grows by 8.5% compared to 2022, to a total of €7,805.7 million. The total consolidated expenditure for science, technology and higher education increases by 21.2% to €3,124.8 million.
The principal novelty of this second OE2022 proposal in education is the commitment, already announced to respond to the problem of the lack of teachers in schools. The executive refers to alterations of the recruitment regime, a new teacher-training model, the creation of incentives for a career in teaching, and the establishment of teachers in areas of greatest need.
With the sectors of sport and youth removed from the education ministry, the budget for education has shrunk slightly, and has a total budget of €7691.2 million euros. This is €114.5 million less than the proposal rejected in October – but the €6,960.2 million for schools, which receive 85.4% of the total, is maintained.
Among various references made to the war in Ukraine in the proposal, the government stresses the “rapid integration” of students receiving temporary protection in higher education.
The document ensures university students who were attending Ukrainian higher education at the beginning of the Russian invasion can enter Portuguese institutions “through appropriate entry routes” as well as allocation of “adequate social support“.
In a budget that foresees over €1.6 billion for Justice, reforms and investments to be implemented this year include “availability of the information system for monitoring the national Anti-Corruption Strategy” and “promotion of electronic interoperability of the Administrative and Fiscal Courts with the Tax Authority, with a view to dematerialised access to the electronic process as a tax enforcement body”.
The introduction of the new Magistratus and MP Codex IT platforms in the courts of first instance is one of the investments scheduled for completion by 2022.
Also this year, the government intends to conclude the revision of the Insolvency and Company Recovery Code (CIRE), for the “optimisation and speeding up of insolvency processes, to adapt it to digital format and establish exclusively electronic procedures, as well as “the amendment of the status of the judicial administrator with a view to reducing restrictions on the exercise of highly regulated professions”.
In terms of investment in the justice sector, the OE2022 provides for a sum of “€87.6 million euros, of which €38.6 million are allocated to the Justice Financial Management and Equipment Institute (IGFEJ) – essentially to finance works and/or construction in Ministry of Justice buildings (courts, prisons, judicial police facilities, among others).
€30.3 million euros are to be allocated to the funds budgeted under the Recovery and Resilience Plan (PRR).
Public investment will increase by 30% compared to 2021, according to the proposal, representing, together with the Recovery and Resilience Plan (PRR), 3.2% of GDP.
The increase in investment includes, “in addition to the boost that comes from the PRR”, a trajectory “consistent with the degree of maturity of structuring investments planned before the pandemic, estimated at €1,997 euros in 2022”.
Added to these structuring investments is the PRR, whose “public investment by the government associated with the PRR projects represents around 1,026 million euros”.
The Government expects public coffers will collect €495 million from dividends from the Bank of Portugal and state controlled Caixa Geral de Depósitos (CGD) bank – the same amount that was included in the proposal presented in October last year. The executive led by António Costa provides for €295 million euros from the Bank of Portugal and €200 million from CGD.
The OE2022 maintains the special contribution on the banking sector, which is expected to raise revenues of €178.8 million, and the additional solidarity contribution on banking, which is estimated to raise €34 million.
Fernando Medina explained at a later press conference that the government has not included in the OE2022 any transfer to the Bank Resolution Fund for lending to Novo Banco.
SUPPORT FOR COMPANIES
The OE2022 provides €2,615 million in support for the recovery of companies and €1,150 million for climate and digital transition.
With regard to the Capital and Resilience Fund, the recapitalisation of companies affected by the Covid-19 pandemic is foreseen, amounting to €1.3 billion.
The capitalisation of the Banco Português de Fomento (BPF) to support companies is €250 million and in the incentives and subsidies under the Recovery and Resilience Plan (PRR) €900 million are available for innovation, digitalisation, qualification and decarbonisation.
Tax relief for companies is also planned, with a tax incentive for recovery (IRC tax deduction of up to 25% of investment), amounting to €150 million, and the end of the PEC – special payment on account and relief from autonomous taxation of IRC, of €15 million.
The fare reduction support programme (PART), which allowed the reduction of the price of public transport passes, has a base funding in 2022 of €138.6 million.
The programme to support the densification and strengthening of transport supply (PROTransP) will have a budget of €15.5 million this year – an increase of €500,000 compared to the State Budget for 2021.
The Government intends to invest €473 million in ‘Railway 2020’ and €51 million in highways this year.
Investment in the expansion in metro networks “in the coming years” will amount to about €7 billion – of which €317 million is allocated for this year.
The government plans to introduce, later this year, changes to the laws governing the activity of taxis and transport in unmarked vehicles from an electronic platform (TVDE).
In 2022, within the scope of TAP’s restructuring plan as approved by the European Commission, a financial support from the Portuguese State of up to €990 million is foreseen.
The government will maintain the value of the Contribution for Audiovisual (CAV) that finances RTP. Thus, the value of the CAV that appears on the electricity bill will remain in 2022 at €2.85.
The executive plans to “strengthen the position” of the Lusa Agency as a “public service body”, without giving further details. A budget of €16.52 million euros is planned for Lusa.