02 October 2012

Council Recommendation with a view to bringing an end to the situation of an excessive government deficit in Portugal

The Council invites the Portuguese authorities to maintain reform momentum in public financial management by reforming the Budget Framework Law to comply with the new European Union fiscal governance rules, and to continue improving transparency and control at all budgetary stages.

In order to bring the headline government deficit below the 3 per cent of gross domestic product (GDP) reference value by 2013, an average annual fiscal effort of 1¼ per cent of GDP over the 2010-2013 period was recommended. In calculating the average annual fiscal effort, the 2011 deficit in the Commission services' 2009 Autumn Forecast was taken as the starting point. The total fiscal effort needed to reach the nominal below 3 per cent deficit target by the deadline was then calculated by assuming a gradual closure of the output gap by 2015.

The government deficit in 2013 is projected at 4.5 per cent of GDP which compares with an original target of 3 per cent. Within the framework of the Programme for Portugal, the unchanged policies scenario takes into account the measures agreed in Council Implementing Decision 2011/344/EU of 17 May 2011 on granting Union financial assistance to Portugal and the fourth update to the Memorandum of Understanding on Specific Economic Policy Conditionality between the European Commission, acting on behalf of the European Union, and the Republic of Portugal ("Memorandum of Understanding"). The fourth update to the Memorandum of Understanding considered fiscal consolidation measures worth about 2 per cent of GDP in 2013, including a sizeable decrease in expenditures through lower compensation for employees and cuts in the areas of education and health coupled with gains from restructuring the central administration and SOEs. On the revenue side, measures aimed at broadening the tax base by reducing tax benefits and tax deductions in corporate and personal income taxes and by increasing excise duties. Along the same lines of action, the 2012 Stability Programme considers fiscal consolidation measures worth about 1.4 per cent of GDP.

Full recommendation

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