It was a criticism that was repeated several times and for years, after it subsided in the first two years of the covid pandemic, but now it has returned with force. The European Commission (EC) is once again focusing on expenditure on civil servants’ salaries and pensions. He says they are the main channel “continuously” fueling growth in current government spending, not counting interest.
The criticism is reflected in the EC’s new cycle of budgetary and macroeconomic assessments of the various countries, the so-called European Semester (2023 cycle), which was released yesterday.
In the assessment (and opinion) on the Portuguese budget plan – which is in fact the special summary that the government makes of its proposal for the state budget (SB2023) and sends it to the EC on the same day it presents the said proposal in parliament — Brussels restores many old criticisms of public policy options in Portugal.
The main targets again seem to be civil servants and pensioners: wages and pensions, which are the largest expenditure items and whose growth is of concern to the Commission.
In its advice on the OE2023 plan, the EC says that the Portuguese budget should be “neutral”, i.e. it should not be expansionist or restrictive in 2023. to mitigate the impact of the energy crisis on households and businesses does not appear to be particularly targeted at the most vulnerable.
And he says that even if this support disappears in 2023 (a scenario that Brussels really has many doubts about), Portugal’s public accounts will continue to be squeezed by government salaries and reforms.
“The neutral contribution of nationally funded primary current expenditure [pelas receitas do OE, não por fundos europeus] is due to the supposed phasing out of temporary support aimed at households and companies most vulnerable to rising energy prices,” begins with a reference to the study signed by the European Commissioner for Economy, Italian Paolo Gentiloni.
The EC says two things about this. It states that “most of the measures have been announced as temporary and will expire at the end of 2023”.
However, according to the Executive Board, “most of the measures do not seem to target vulnerable households or businesses”, although “most of them contain a price signal in the sense of reducing energy demand and increasing energy efficiency”.
Less temporary is the pressure that exists in other sections. As mentioned, Brussels believes that “the main drivers of growth in nationally financed primary current expenditure (excluding new revenue measures) are the continued pressure on current government expenditure, including pressure on government wages and pensions”.
According to the Commission’s accounts, “measures to increase expenditure in the Portuguese budget include, namely, a general increase in pensions (equivalent to 0.5% of GDP or gross domestic product), as well as measures related to public employment (0.6% of GDP), namely a general increase in government wages and the minimum wage, which increase pre-pandemic pressures on current government spending”. So the two together are worth about 1.1% of GDP.
In addition, “the planned unwinding of expenditure measures introduced in response to exceptional increases in energy prices corresponds to an effect of reducing the deficit by about 1.2% of GDP,” the EC said.
Portugal, “a borderline case”
During the press conference presenting the conclusions of this new cycle of the European Semester, Gentiloni was even more emphatic in his criticism of the government’s OE2023 and Finance Minister Fernando Medina.
He clearly indicated that he does not believe that the anti-crisis package can be almost completely reversed in 2023, as predicted by the government. This lends even more weight to the EC’s concerns about “continued pressure” on government wages and pensions.
“Portugal is, in our opinion, a borderline case [está em cima do limite que separa o bom do mau]Because the OE2023 proposal could derail significantly if it is necessary to extend support measures next year against the consequences of the energy and inflation crisis, the European Commissioner warned.
The senior official said Portugal’s OE is “close to what we asked for, but we are concerned about its evolution as energy prices could move Portugal off the expected path”.
“The Portuguese government’s energy measures expire at the end of this year, but if these measures are to be extended in 2023, we will face an additional burden equivalent to 2% of gross domestic product (GDP) in the 2023 budget,” warned Gentiloni.
“We are asking Portugal for caution, more than a correction,” but the country is “one of 10 or 11 countries whose fiscal plans are not in line with our recommendations,” said the Commissioner.
Among the most indebted countries, Portugal is the one to worry about
The European Commission goes even further in the documents and studies it distributed this Tuesday. He says Portugal is the only country in the group with a “high debt” showing that it is on a path where it could violate budgetary recommendations of caution and thus fail to guarantee the expected debt reduction trajectory and the government deficit.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
