Costa e Medina’s budgetary leeway can be much bigger than it is said

The fiscal leeway that currently exists in Portugal seems much wider than it says: according to a new study by the Public Finance Council (CFP), released this Thursday, this year’s government deficit (measured in the national accounts) could the reach of 1.3% of gross domestic product (GDP).

And in 2023, public accounts could even register a new budget surplus of 0.1%, repeating the unprecedented and historic figure reached in 2019, before the pandemic broke out. The government target for the budget deficit for 2022 is (was) 1.9%, according to the cabinet.

This is, to use the expression of the President of the Republic, considerable “room for maneuver”, about 0.6 percentage points. The positive effect of very high inflation on revenues and the cessation of many measures of the pandemic (about €2.9 billion in budgetary savings) help explain the apparent slowdown.

CFP projections are made on the assumption that fiscal policy measures are immutable.

As already written, very high inflation drives up tax revenues, which gives the government the possibility of less tight budget management, at least in the short term.

An example of this is the various measures to support household income (which will significantly increase this year’s spending) that have been announced, even as international and European recession scenarios loom and doubts arise about the future of Portugal’s huge debt in a environment of sharply rising interest rates.

So, even with more burdens (see the example of the Families First package, worth 2.4 billion euros, with the expectation that the amount of aid to be granted will be particularly large in October next year), this year’s deficit will be lower than what has been budgeted in the 2022 state budget (OE2022), says the Council chaired by Nazaré Costa Cabral.

According to the CFP’s calculations in the new report “Economic and Budgetary Perspectives 2022-2026”, with an inflation forecast of 7.7% this year, the government will benefit from a strong boost in the accounts, mainly through tax collection, as intended. .