Key points coming out of government’s 2023 State Budget
Fernando Medina describes his first full budget as one of stability, confidence and the 'right accounts'. Image: António Cotrim/ Lusa

Key points coming out of government’s 2023 State Budget

Experts and pundits warn government’s macroeconomic forecast “unrealistic”

With so many experts, pundits and opposition politicians warning of the ‘unrealistic’ basis on which Portugal’s PS government has based its 2023 State Budget, the key points of the document presented by finance minister Fernando Medina today are as follows:

  • Economic growth next year of 1.3%
  • Inflation (of 7.45% this year) reducing to 4%
  • Deficit of 0.9% and public debt of 110% of GDP
  • Increase of €52 per year in public sector workers’ pay – this varies in percentage terms for salary scales, the lowest seeing increases of 8%, with the percentage decreasing as salaries get higher
  • Meal allowances (which are part of wage packets) to increase from €4.77 per day to €5.20
  • Pensions increases as per previously outlined
  • Minimum salary to increase from €705 to €760 (with a new agreement with social partners setting yearly increases to the end of this legislature)
  • Selective reduction in IRC (the tax paid by businesses): this idea is to benefit businesses which increase wages by the 5.1% agreed with social partners by reducing their IRC dues
  • Reinforcement of programme for tourist rentals sector, restaurants and similar
  • Extra support for farmers with 10% off each litre of agricultural diesel
  • Changes to IRS (income tax) scales – to cater for the 5.1% salary increases agreed with social partners and to help increase family incomes (by giving higher allowances for children, etc.)
  • Crypto profits remain untaxed for another year (in spite of rumblings in the recent past to say these would start being subject to tax…) as long as those earning them have held their currencies for longer than a year. In cases where profits are made on currencies that are more recent, the tax is to be 28%, as they are seen as more ‘speculative’ in nature
  • Municipalities are to receive up to €1.204 billion through the FFD (fund to finance decentralisation)
  • IRS ‘benefits’ for taxpayers generating own energy (and selling to national grid)
  • IRS benefits for youngest taxpayers, allowing them to keep more income, on a sliding scale (50% in first year, 40% in second, 30% in third…)
  • IRS compensation for landlords prohibited by law in increasing rents by more than 2% in 2023 (amount not specified)
  • Extra subsidies towards housing for students
  • Reinforced budget for health sector (which will receive €14.858 billion this year, a 7.8% increase on 2022’s budget)

A lot of today’s soundbites concentrate on how much the measures are costing the government, and/ or how tough the government has been.

For example, ANA airports authority has apparently requested €214 million by way of “repositioning financial equilibrium” – “but the State refused”, writes Expresso.

These kind of details pepper today’s announcement: support for energy, for example, will cost the State €500 million; expenses on the environment and climate action will cost the State €1.7 billion; support for farmers will cost €40 million – and benefit 145,000 of them; keeping transport costs at the level they are will cost €66 million.

The document has been pre-publicised with all the fervour of the Oscars.

This is finance minister Fernando Medina’s first ‘fully owned’ budget (the last being very much the work of his predecessor), and he means to “shrink the country’s deficit by half in 2023”, and his ambition is to satisfy investors, lenders and international financial institutions, including ratings agencies, by taking Portugal off the ‘blacklist’ of EU countries with the highest public debt.

It really all depends on whether his forecasting falls in the right ballpark – and this is where it could all so rapidly fall apart (if it doesn’t).

For now, the document will be debated in parliament at the end of this month (October 26 and 27), with the final voting to be held on November 25.

Tomorrow (Tuesday) President Marcelo will be meeting with all parties in parliament, to hear their views on the document.

Fernando Medina has already said that he doesn’t expect a great deal of enthusiasm among the opposition for the government’s spending projections – and this is one bit of forecasting in which he has certainly appeared to score a bull’s eye. Only LIVRE and PAN have said they are prepared to discuss changes to the budgetary plan; all other parties (PSD, Iniciativa Liberal, CHEGA, PCP) have denounced it as one that will lead to economic stagnation, insisting it is a plan that is lacking in ambition.

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