The “devil is in the detail”: next year’s budget shows that Social Security will be unable to pay future pensions by 2030. That’s 20 years earlier than the government first predicted. As if this wasn’t bad enough, on Monday Social Security found itself €40 million out of pocket as money invested in Portugal Telecom fell through the floor. It has been another devastating week for a country bravely trying to extricate itself from the deep sludge of economic quicksand.
With the troika on its way back to check Portugal’s finances next week – and clear signs that the country is losing faith in the coalition government – pressure is now on President Cavaco Silva to call early elections before next summer.
Last week’s attempt by the country’s leaders to introduce “a gentler budget” than the bitter pills of the last three years has failed miserably. As one political commentator pointed out, “the State Budget for 2015 presents an austerity more camouflaged than usual, conveniently wrapped in a form of pre-election optimism, but it is really no more than a caricature of hope. What is on the table is incipient relief for some, a vague promise to taxpayers, a new increase in taxes and unrealistic projections for the economy”.
But apart from the “largest bucket of cold water” (the maintenance of the unpopular extra tax on incomes), and the news that IMI property rates will be going through the roof in 2015 – António Frias, president of the national property owners association, told reporters over the weekend that “there are people asking for bank loans so that they will be able to pay IMI next year” – the real shock is that the country’s Social Security system is rapidly running out of money.
According to an exclusive by Correio da Manhã over the weekend, “even with all the cuts to pensions imposed by the troika since 2011, Social Security will be without funds to pay future pensions 20 years earlier than expected. Within just 15 years, in 2030, Social Security’s Financial Stabilisation Fund – the fund used to finance future pensions – will have run dry. In 2012, the government said this money would last until 2050”.
Comparing the government’s budget for 2012 against the proposal for 2015 reveals the full horror of the scenario, CM continues.
“In just three years, Social Security has gone from a positive financial situation until 2035 to financial rupture in 2020.
The premise of the 2012 State Budget was that the first negative balance – €467 million – would appear in 2035, but the proposal for the 2015 budget forecasts a much larger “financial hole” – to the tune of €854.6 million – just five years down the line.
It’s a shock that will not go away, though, for now, PM Passos Coelho is reluctant to talk about it.
The issue has been lurking in the ether. Even last summer Passos Coelho admitted that the problem of sustainability of state pensions “persists”, but the consequences are further down the line and whether early elections are called or not, this will be the last State Budget of the current administration.
Budget breakdown
Putting the budget into bite-sized chunks is not easy because, as the PS’ outgoing president Maria de Belém Roseira wrote over the weekend, “the devil is in the detail”.
What has become clear thus far is that:
• the longed-for end to the IRS “sobretaxa” (extra tax) is yet to come;
• pleas from hoteliers and restaurant owners for a reduction in sky-high IVA have fallen on deaf ears;
• the cap on rate increases has been lifted – with property owners now fearful about next year’s IMI;
• new charges are to be levied on fuel, tobacco, beer – even plastic bags;
• there will be cuts to education, agriculture and other ministries;
• there will be a variety of new ‘green taxes’;
• single people without children will be taxed further on their mortgages
As Público’s Pedro Sousa Carvalho explained in a clip on “who wins and who loses”, “thousands, if not millions, of Portuguese will be a bit worse off” as a result of the 2015 budget.
Nonetheless, there is some good news:
• 500,000 pensioners will be ‘better off’ as cuts to low-end pensions are lifted;
• families with children will get greater IRS relief;
• businesses save 2% on their IRC contributions;
• an extra €131 million is earmarked for town councils;
• public sector workers will have 20% of salary cuts so far returned to them (although more pay cuts are said to be in the pipeline).
It’s a budget that promises to bring the level of public debt down considerably – to 123.7% of GDP – but analysts at UTAO (the technical unit for budget support) are not in the least bit convinced.
Echoing the predictions of leader writers over the last few days, UTAO sounded the alert on Monday, saying there was “elevated uncertainty” that the budget would stack-up.
In a document leaked to Lusa news agency, UTAO highlighted a global slowdown in growth “that could have a negative effect on economic growth in Portugal” and an “intensification of fragilities” in the conditions of finance within the country.
|| Passos booed at official ceremonies
Meantime, PM Passos Coelho receives boos and chants wherever he goes. With even former PSD leader Marcelo Rebelo e Sousa admitting that time for this government is fast running out, Passos Coelho’s popularity has never been so slow.
He was unable to make himself heard over angry crowds waving placards during an official visit to Coimbra on Sunday – telling journalists: “We’ll talk another time, okay?”
And the very next day came the shock that Lisbon’s stock market had taken another battering, with shares in PT falling to an historic low.
As newspapers were quick to point out, Social Security’s Institute of Capital Fund Management has already lost “more than €40 million since buying PT stock on April 30”.
The 2020 “black hole” in Social Security financing is fast approaching.
By NATASHA DONN [email protected]
