If economy gets worse, government will increase budget deficit – minister

Portugal’s minister of finance, Fernando Medina, said on Friday that the government is not stuck to this year’s budget deficit target and will allow it to be higher if economic developments are not favourable.

“If it does not go so well, we will not stick to the objectives in budgetary matters and we will let the automatic stabilisers float,” he said, noting that, in that case, the deficit could be higher than the government expects for this year.

Automatic stabilisers correspond to budgetary variables, both on the revenue and expenditure side, that react automatically to developments in the economy, which have an impact on the budget balance. For example, when the economy is worse, unemployment increases and, therefore, expenditure on unemployment benefits increases and revenue decreases, which has an impact on the budget, but, in theory, minimising the impact of the bad economic moment.

“In times of difficulty, the stabilisers work and the deficit can operate within the margins that the treaties allow and so the state supports the economy which prevents a possible crisis from deepening,” he said.

However, Medina believes that it will not be necessary to reach that moment.

Source: Lusa