Government aims to shrink budget deficit to 1.4% by 2017

With all kinds of forecasts and promises emerging from yesterday’s Council of Ministers, the bottom line is that yet again the government has kicked thoughts of a Brussels-led ‘Plan B’ into the long grass.

All kinds of ideas and reforms have now been ‘approved’ and it remains to see whether European moneymen will share the optimism echoed by president Marcelo, who has called the government’s Stability Programme “very sensible, very prudent and very realistic”.

The programme, along with the national reforms plan, were passed unanimously in an upbeat mood, with national and international media concentrating on different aspects.

Top of the agenda for Bloomberg is the fact that “Portugal’s government aims to shrink its budget deficit to 1.4% by 2017”.

From last year’s excessive 4.4% (click here), financial forecasts are for 2.2% this year – with economic growth reaching 1.8% and steadily growing until 2o20, by which time it should be at 2.1%.

Talking to SIC television news, prime minister António Costa stressed that “rigorous management of public spending” will help Portugal reduce its deficit without the need to cut public workers’ pay or increase direct taxes.

Público quotes president Marcelo saying it’s “fundamental” that Brussels now gives the government plans the green light.

“We’ll know in May,” he told journalists – referring to the Council of Ministers’ approval of the stability programme as a “start of life and a positive sign for the times ahead”.

So what are the bottom lines of the programmes approved yesterday:

National tabloid Correio da Manhã runs with the headline: “Government to give bonuses to civil servants” – but the truth of the matter is that the government is carefully reducing its public sector payroll by adopting the policy of hiring only one member of staff for every two that leave.

It is not a move that has been universally welcomed – particularly by managers and unions in the health and education sectors – but it is to stay in place until 2017.

In 2018, the plan is to hire three people for every four that leave; in 2019, four for every five and only in 202o will the State return to hiring one new member of staff for every civil servant who leaves.

The strategy promises to save the State as much as €1.7 billion , says CM.

Elsewhere, there will be changes to “help low income families” coming in 2018, and tweaks to the way IMI rates are charged.

CM explains “a progressive mechanism” is to be introduced, to calculate IMI from a new perspective, dependant on the property owners “global wealth”.

“The idea is that those who have the most money support a higher tax” relieving those who may have a house, but have “more modest earnings”.

The rates’ changes will also create incentives “to use the productivity of the soil”, says CM and benefit people who rent out.

But one of the largest unknowns is when this new IMI mechanism will start coming into effect.

Nonetheless, both António Costa and his finance minister Mário Centeno affirm: “There is no need for extraordinary measures. Not today, nor tomorrow.”

Indeed Centeno has gone so far as to say: “There will not be any increase in taxes for businesses, no increases in IVA and no cuts to pensions.”

But right wingers are determined to show how they feel about the plans.

Former prime minister Pedro Passos Coelho said yesterday that growth forecasts were “too modest” to pay Portugal’s debts, while the CDS is calling for a vote to be taken on the Stability Programme in parliament.

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