Portugal has managed to reduce the government deficit by keeping it at a level close to 0% of gross domestic product (GDP) since 2022 – 0.4% last year, an equal target before this and another reduction to 0.2% next year. However, the European Commission (EC) does not disarm with regard to the pressures on government spending, especially on the salaries of civil servants and other employees of the public administration, such as state-owned enterprises.
In the broader assessment of the stability programs (in the case of the eurozone countries) and convergence programs (outside the eurozone) for 2023, Brussels is dissatisfied with a supposedly greater pass-through of inflation to government wage costs in four countries, including Portugal.
The EC explains that it would be less concerned if Portugal were not in the group of countries “with budgetary imbalances” and were in one of the top positions in terms of the weight of public debt, which remains above 100% of GDP. According to the Stability Pact, whose rules imposing very strict financial discipline will return in full next year, this should be a maximum of 60 percent.
The first round of evaluations under the European Semester, which took place in May, had already mentioned the problem, but in the consolidated evaluation now unveiled, the European comparison emerges.
“High inflation exerted pressure that contributed to the increase in public expenditure in several Member States. This is mainly due to increases in public sector wages, where examples from countries such as Belgium, Poland, Portugal and Slovakia are notable”, the Commission said.
The warning is louder for those in the Eurozone
The warning carries special weight for the eurozone countries (only Poland is excluded), because for them the discipline requirements of the Stability Pact are heavier.
But it’s not just civil servant salaries that keep pace with inflation. The inconvenience of Brussels also extends to the elderly and pensioners. He says the inflationary effect also spread to reforms, which led to “increases in old-age pensions or other social benefits, in countries such as Belgium, Bulgaria, Italy, Greece, Poland, Portugal and Spain.”
Portugal is in both groups and the Commission considers that “some of these increases are due to government discretionary measures, while others are due to more automatic channels, such as indexing pensions to inflation, normally with a one-year lag”.
Both phenomena occurred in Portugal. This year, in April, the government went ahead with the “extraordinary wage increase” of government wages, crediting a 1% increase retroactive to January.
“This additional 1% adds to the guaranteed update at the start of the year, meaning the average civil service increase will be 4.6%,” says an official government source.
Still on salary, the director also decided to increase the workers’ food subsidy, “increasing its value from 5.20 euros/day to six euros/day”. “This increase is retroactive to January 2023 and is a way to increase the income of public administration employees.”
As for pensions, the government has decided to “an interim increase of 3.57%, effective since the beginning of July”, only part of what is foreseen in the law.
“Adding this interim increase to the increase already implemented since January, in the second half of the year, pensions will be updated, with regard to December 2022, to the value resulting from the Social Security Basic Law,” said the Prime Minister, António Costa, in April, announcing the measure.
The rules for updating pensions in 2023 “determine that the increase corresponds to the inflation value of 2022 plus the extra GDP above 2%”, the government explains.
This is what happened in 2022, during the so-called first moment of the inflationary crisis: prices soared with the start of Russia’s war against Ukraine and threatened to inflate the turnover of many branches of the economy, leading to a substantial increase in GDP, which is now fading after more than a year of conflict.
The economy is running at full speed and the problems of families have come to light after the very sharp interest rate increase by, for example, the European Central Bank (ECB).
Prior to this, at the end of last year, the government had approved the extraordinary aid of 240 euros for families receiving minimum benefits or benefiting from the social electricity tariff, for about one million “vulnerable” homes, the executive said.
Above average weight
According to the latest EC data, Portugal does not even have the highest share of public wages in European GDP. But it is clearly above average, which is why the Commission maintains its criticism of the aforementioned group of four countries whose salary budgets proved to be more sensitive to high inflation.
The weight of the Portuguese government wage bill will currently be around 10.2% of GDP and will even decrease compared to 2021. Problem: the eurozone average is 9.8%.
In 27 EU countries, Portugal ranks 12th in the EC ranking for 2023. In the EU, Denmark has the highest share of government wages (14.5% of GDP). Belgium leads the eurozone with 12.9%. The lowest weights of expenditure on employees are found in Ireland (5.5%) and Germany (7.8% of GDP).
In the latest forecasts, the EC estimates that the public salary pie in the Eurozone will grow by 5% this year, but in the case of Portugal, the expected annual increase is almost 9% in 2023, due to the above measures announced by the Costa government and Finance Minister Fernando Medida since the presentation of the state budget (OE2023) in October and throughout the year.
By the end of this year, the Commission estimates that Portugal will spend €28 billion on public salaries, €2.2 billion more than in 2022.
But in this new assessment of the eurozone’s stability programs and fiscal position, and already focusing on the application of the stability pact in 2024, the European Commission reminds that the Council’s recommendations are in place and that countries are treated “differently” depending on “the levels of public debt they present”.
“In 2023, highly indebted countries – Belgium, Greece, Spain, France, Italy and Portugal – should ensure prudent fiscal policies, in particular limiting the growth of nationally financed primary current expenditure below potential product growth in the medium term,” the EC reminds.
Despite the EC’s message, large sections of the civil service continue to demand salary increases, career advancements and better working conditions, especially in sensitive sectors such as health care and education, where unions say staff erosion is high and increasingly exacerbated by the accelerated pace of retirements. Public school is one of the most affected sectors.
Government data indicates that the number of civil servants continues an upward trend, after the minimum levels reached in 2014, the country was under adjustment by the troika and the PSD-CDS government.
Currently, the size of government services has reached the highest ever in terms of the number of employees. According to the latest official government census (Direção-Geral do Emprego Público), there are almost 746,000 workers in Portugal (first quarter of this year), 0.6% more than a year ago.
Source: DN
