Fernando Medina, Minister of Finance, presented his second state budget (OE), the OE2023, yesterday, Monday 10 October. He guaranteed that, if necessary, the government will use the margins it has to fight any crisis, “an adverse scenario”, next year.
He never uttered the word “recession” or “stagnation,” but promised that, if necessary, he would ask for a higher authorization for government spending as early as 2023 than what is in this OE’s law or a higher debt ceiling. A corrective EO.
And he said he was aware that there is “a deterioration in the external context”, but that “the factors of trust at the internal level” can stop more adverse clashes.
Therefore, in this SO 2023, the real growth of the economy loses momentum but remains intact (1.3%), employment does not fall (but only rises 0.4%) and unemployment remains intact at a historically low value, 5 .6% of the active population.
“No fundamental spending and no debt issuance will not be carried out on a budget whim, so as not to make a corrective budget,” the minister said.
Budget with plan B for worst-case scenarios
Anyway, despite it being a scenario that is not even allowed in the macro framework, it should be an easy task for Medina. With an absolute majority in Parliament, the PS will almost certainly provide what Fernando Medina needs and understands to support the economy if the situation worsens.
In this new OE proposal, the government deficit falls again (as much as in 2022), there are new taxes, there are easing in the IRS, there is an update of pensions, the payroll of the civil service and measures to support the birth rate there is an explosive growth in public investment (after falling below the target again, in 2022), but the expected inflation is 4%.
“It’s high inflation,” but it’s the only accepted reference. No margin of error is included in this delicate part, which is the price evolution in the macroeconomic scenario, neither up nor down.
At the press conference that took place in the afternoon, in Terreiro do Paço, in Lisbon, one of the longest in recent years, the official explained that the “correct accounts” and the deficit reduction that he continues to insist on and in the deep The reduction of public debt, which is still very large internationally, has a secondary purpose: it is not just about respecting European rules and reassuring creditors and valuers.
Medina said that “we will not have a pro-cyclical fiscal policy”, that is, if there is a stagnation or even a recession or if the growth forecast in this new OE 2023 is below the government’s 1.3%, it will not be. the government to make matters worse.
At the limit, it may not go that far in reducing the deficit, which will end in 2022 at a value equal to 1.9% of gross domestic product (GDP) and whose target for 2023 is set at 0.9 % of GDP.
Medina appears to have some slack or margins left over from 2022 or generated by the cessation of certain measures.
For example, this year’s public investment should be over €2.3 billion lower than what Fernando Medina himself estimated in his first OE, in April.
The minister explained that the delay in releasing public investments, closely linked to the approval processes of European funds and especially the Recovery and Resilience Plan (PRR), is natural. Then there was also almost a stop “in the public machine”, after the appointment of early elections, the minister said.
For example, public investment could increase by more than 36% by 2023. Medina considers this normal, as many public and private projects that rely on European funding will finally get to “cruising speed,” he said. Be that as it may, if more is needed to help households and businesses with ‘fundamental’ problems, ‘let’s play fiscal policy’.
“In the event of a greater economic slowdown, we will be better prepared to respond to adverse scenarios,” he reiterated.
Crushing Deficiencies Can Pay Off
He recalled that if the deficit had always been 3% of GDP from 2016 to 2021, and not lower than it was, “today we would pay more than €1300 million in government debt interest”. “In other words, it would be another 2,500 million in interest by 2023,” Medina calculated, a value that would put Portugal’s finances in a more delicate and questionable position. That’s the idea.
Still, with clear bills and significantly declining debt, the interest bill to be paid to official and private creditors (banks and investment funds) is expected to rise from €5060 million in 2022 to €6257 million by the end of next year, estimates today the ministry of Finance.
If the 4% inflation Medina believes in spirals out of control and gets higher, the tendency is that the interest rates set in the anti-inflation mandate of the European Central Bank (ECB) and the banks, by dragging on, will become much more. higher than the current values.
In the national accounts, which can then calculate the projected deficit of 0.9% of GDP in 2023, which counts for rating agencies and evaluators such as the European Commission, ESM and IMF, Finance shows that the reduction in the fiscal imbalance of next years are all made by the increase in revenue.
Total public collection, even with a pure tax relief (only direct and indirect taxes), increased by 5.9% in 2023. Expenditure increased by 3.7%, thanks to the nearly 37% increase in public investment, from 5.5 for personal 24% interest.
In an environment of uncertainty and unstoppable war in Ukraine, the Finance scenario managed to pass the scrutiny of the Public Finance Council.
The entity of Nazaré Costa Cabral said that taking into account “the information currently available and considering the risks identified, the CFP endorses the ministry’s macroeconomic forecasts”. He said this scenario on which the OE 2023 is based is “consistent globally with the remaining projections” for Portugal.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
