This year’s budget surplus, which is expected to amount to almost 2.2 billion euros (0.8% of gross domestic product or GDP), will be ‘channeled’ into a ‘structuring investment fund’ that the government plans to use after 2026 . the year of the next parliamentary elections, the Minister of Finance, Fernando Medina, revealed yesterday when presenting the new state budget proposal for 2024 (OE 2024).
And he said more: the idea is to always save, by “channeling” future budget surpluses that arise and “new financial flows” to finance major investment projects in the post Recovery and Resilience Plan (PRR), which ends precisely in 2026. The elections will take place in October of that year.
In other words: the government has already reserved the surplus that it foresees in 2024 for this purpose. According to the new proposal, the plan is to reach the end of next year with a positive margin of 664 million euros, equivalent to 0.2% of GDP, the minister emphasized yesterday.
In addition to the surpluses, the government official noted that there are other sources of income that should be set aside to spend on major investments later. He gave the example of public-private partnerships (PPP).
So far, these have caused very large losses for the state and taxpayers, but Fernando Medina is confident that there will come a time when PPPs will start making profits.
According to the new OE, this is true, but only in twelve years, in 2036, and it starts with only €33 million in surplus from PPP. For now, the shortage of partnerships, most of which are roads and highways (the old SCUT that is now paid for), is enormous and even greater than predicted.
According to Finance, “given the forecast in the 2023 state budget report, there is an increase in estimated net charges, which is due to an increase in gross charges, partially offset by an increase in revenues.”
This year, the government predicts that the state loss from PPP projects will amount to 1.3 billion euros. Repeat the dose next year.
The increase in costs compared to the OE 2023 is explained by “payments for availability and service – where the growth of the considered inflation rates and road traffic contributes to this increase”, by “costs for major repairs – where a multi-year investment is estimated to be higher than that considered in the previous year” and the “costs with the toll service – a consequence of the increase in inflation and traffic taken into account, as well as renegotiations that took place in the concessions in the Algarve and North Litoral, which aimed to reduce operational risk on the part of Infraestruturas de Portugal,” the OE report said.
In any case, Medina is convinced that the PPP will help with the new fund. This is intended to “respond to the double need for more structuring investments in the period after 2026”, it will “focus on private public investments”, “financed with resources from positive budget balances and other sources, such as, for example, concessions [PPP]and “starts in 2023 with two billion euros,” he said.
“We advocate the maintenance of a permanent and definitive instrument at European level as a successor to the PRR, but we must mobilize resources now to ensure that we continue to have resources for the future after these years of strong availability,” said the responsible person from Finance.
2024 and beyond
In the presentation of the new OE, the minister explained that the government plan for 2024 has three main pillars. It aims to strengthen incomes to counter the strong erosion effect of inflation and rising interest rates on the middle class (through the IRS) and for the poorest and ‘most vulnerable’, through an announced strengthening of social support and pensions.
There is also a second pillar: investments aimed at modernizing the country and increasing productivity and exports.
And a third axis is “protecting the public pension system” and giving the necessary impetus to the above-mentioned major structuring investments, many of which are now being launched.
In this OE there are no references to the new airport, perhaps because TAP has yet to be sold (reprivatized).
In any case, before the 2026 elections, Portugal will face about three very challenging years. Next year, the government promises an increase in the “average earnings” of civil servants by about 5.4%, a value comparable to the inflation that will have been around that value this year, but which will fall to about 3% in 2024 , according to the new OE Finance says that 1.5 billion euros will be spent on this, more than a year’s loss in the PPP.
Medina also announced a “historic pension update” that will mean an average increase of 6.2%. Another 2.2 billion euros in expenditure.
The ‘transversal cut of the IRS’, which involves a revision of tax brackets by 3% (the expected inflation), the reduction of rates up to the fifth income bracket and the strengthening of the minimum wage (so that those earning the minimum wage do not pay taxes ) can provide some oxygen to about six million taxpayers, the government hopes.
At IRS Jovem, the budgetary cost of the measure should amount to approximately 200 million euros. In addition, there are free passes for up to 23 years, which Medina estimates are worth approximately 126 million.
In the field of housing construction, the highlight is the interest subsidy on loans. Each person can enjoy an annual benefit of up to 800 euros. There is also the option to defer payment of the installment for two years, but it is not permanent support because the entire debt will not have to be paid until later.
The increase in family benefits, which could amount to up to 30%, is expected to cost the OE around 320 million euros. Expanding free daycare centers to more children could entail an additional expenditure of 100 million euros, Medina said.
All these large numbers fit into the aforementioned budget surplus of 0.2% in 2024, which already leads some observers, such as Opposition parties to the PS, to say that a more generous budget is possible for people living in Portugal, families and businesses. .
Next year the tightening of the financial belt will be less, but it will continue with “caution”, as requested by the Governor of the Bank of Portugal and defended by the government itself.
It will therefore be the second largest positive balance in democratic history (the largest this year is 0.8%), even if we take into account the aforementioned relief measures from the IRS, taxes on fuel and targeted increases in certain social support measures .
A tight scenario
The impact of the inflation crisis and the aggressive increase in interest rates will seriously dampen the pace of the Portuguese economy and job creation. According to the new budget proposal, real growth will fall to 2.2% this year and to 1.5% in 2024.
Employment is also weakening significantly. According to the new OE 2024, net job creation in the economy was 1.5% in 2022, but it is slowing to 1.1% this year and 0.4% next year (so less than half).
High inflation, the main cause of all this, will continue even if it will start to decline due to the very serious increase in interest rates. Inflation this year is expected to reach 5.3% compared to comparable eurozone countries (harmonized measure, HIPC), above the estimate six months ago (5.1%). The forecast for 2024 was adjusted upwards from 2.9% to 3.3% in this new OE.
The weight of unemployment, which remained low until the crisis that started in early 2022 and amounted to almost 6% of the active population or even less, is rising again. This year, the unemployment rate is expected to reach 6.7% of the active population and remain so next year, the government expects in the new OE.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
