Few surprises in Portuguese state budget for 2007

NEXT YEAR will be marked by continued cuts in public spending, maintaining government receipts and further structural reforms.

This was the 2007 budget in a nutshell announced by Finance Minister Fernando Teixeira dos Santos last Tuesday, as the state continued to spend more than it was receiving, despite stringent housekeeping measures.

In 2006, the treasury received 34.771 billion euros from taxes, 1.025 billion from transfers, 409 million from sales of goods and services, 312 million from property rentals and 572 million from fines and interest – a total of 37.1 billion euros in receipts.

However, its expenses were 26 billion euros on essential public sector services, 6.2 billion on defence, police and public administration, 1.7 billion on economic agencies and ministries and 9.8 billion on transferences, servicing the public debt and other miscellaneous expenses – a total of 43.7 billion euros in expenses.  

Reforms to the public administration, social security and national health system should, the government hopes, reduce public spending with expected reforms in pensions and cuts in civil service salaries. 

Reacting to the state budget for 2007, Prime Minister, José Sócrates said last week that the government’s spending reforms had brought historic reductions that had not been seen in Portugal since the 1974 Revolution.

“From a country notable for almost a total lack of reform, Portugal has become the country within Europe that has instigated the most structural reforms, which we will continue to implement in 2007,” he said.

Finance Minister, Fernando Teixeira dos Santos said: “There are no easy budgets. We’ve got to correct the imbalance which is preventing this country from enjoying stronger growth. This budget reflects a realistic and prudent course of action,” he said.

However, despite the government’s claims that the majority of the population were behind its sweeping reforms, the week leading up to the budget was blighted by public and union demonstrations, including a two-day teachers strike and 80,000 citizens pouring onto the streets of Lisbon protesting at low wages, cuts in the number of civil servants, the introduction of health service charges and measures to cap local government spending.

José Sócrates said he wasn’t scared of the demonstrations and reiterated that his government was doing everything to eradicate the public debt while pledging to continue structural reforms that would ensure that Portugal would never suffer a budget crisis again.

The 2007 Portuguese state budget at a glance

• VAT to remain at 21 per cent, no direct tax increases.

• Spending on science, research, development, technology and education up 64 per cent to 260 million euros.

• Budget deficit on target for 3.7 per cent.

• Government current expenses up 3.6 per cent in 2007.

• Government receipts increase by 6.6 per cent in 2007 offsetting rising expenses.

• Interest on state debt to rise to 1.5 billion euros against 500 million in 2006.

• Portugal’s Gross National Product valued at 159,733 billion euros.

• State’s overall expenditure expected to climb 1.9 billion euros to 66.628 billion euros.

• Civil service employees down by 5,900, costs down by 5.5 per cent and wages down by 2.4 per cent.

• Tobacco receipts up 7.3 per cent to 1.3 billion euros.

• Alcohol receipts worth 207 million euros.

• Health service taxes for hospital stays charged at five euros per day up to 10 days.

• Pensions over 435 euros a month pay IRS.

• Income Tax receipts up 3.77 per cent and up 2.1 per cent for single persons in 2007, in line with inflation. Corporation tax receipts up 25.45 per cent due to increased efficiency of 2.2 percentage points in 2006, rather than tax hikes.

• Fuel up 2.1 per cent or 2.5 cents in 2007, in line with inflation.

The Portuguese state of the economy in 2007 at a glance

• Gross National Product expected to rise by 1.8 per cent encouraged by increased exports, a recovery in consumer spending and investment.

• Economy expected to grow 1.4 per cent in 2006 and 1.8 per cent in 2007.

• Public sector wage increases to 1.5 per cent in 2007, below the 2.1 per cent level of inflation.

• Despite keeping a tight rein on public and consumer spending, state expenses are set to continue rising in 2007, because of interest rates on public borrowing.

• Public transport projects, such as the high speed TGV rail link are likely to absorb half of all Portuguese government investment or 2.5 million euros in 2007, down 14 per cent on 2006.

• Government to offer corporation tax sweeteners to companies prepared to stay or relocate to the depopulated interior of the country. Exemptions for social security for three years on new staff, with IRC fixed at 15 per cent for first five years, followed by 20 per cent thereafter.

• Social security expenses expected to rise to 942 million euros, well above the government’s receipts.

• Government’s redistribution of funds could leave 54 câmaras short of money in 2007.

• Madeira will get 34 million euros less than 2006.

• Government is expected to receive 950 million euros from privatisation schemes in 2006 and 2007.

• The government’s cash necessities in 2007 are likely to reach seven billion euros in 2007 – down two billion on 2006.

• Portugal is expected to be one of the few countries likely to violate the European Union’s Growth and Stability Pact in 2007.

• Inflation expected at 2.1 per cent and unemployment at 7.5 per cent.