Edition 1501
17 November 2018
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Budget of appeasement as elections loom

by Brendan de Beer, in Business · 18-10-2018 09:48:00 · 0 Comments

Finance Minister Mário Centeno was all smiles this week as he presented the Speaker of Parliament with his government’s proposed budget for 2019. In it, he has allowed for increases in pensions, while also awarding across-the-board pay hikes to civil servants, meaning that almost half the electorate will feel an immediate improvement in their finances starting next January.

Budget of appeasement as elections loom

Marcelo Rebelo de Sousa has since his election to the president’s office in 2016 been seen as an unexpected ally of the Socialist minority government.
Despite being elected under the banner of the opposition Social Democrats, he has often ruffled the political feathers of his own party by heaping praise on the leftist government for their success in the country’s dramatic economic turn-around since the departure of the bailout Troika in 2014.
But speaking after the budget was presented by Finance Minister Mário Centeno just minutes before deadline, Marcelo Rebelo de Sousa admitted the budget has been contaminated “by the electoral climate”.
European elections are slated for next May, followed by the all-important general elections at the end of September or the beginning of next October.
“It’s inevitable [thinking of elections], especially with the European elections being brought forward to the end of May – and there is a direct sequence between EU and general elections”, explains the President.
The President reasons further that while the budget is aimed at increased social justice, that “it is normal for parties to be jostling for position” given the current economic climate and the political significance the budget will have on elections next year.
The President adds that “while the budget proposals are not made solely thinking of the elections, they will naturally have electoral effects”.
The recent spate of strikes this autumn, most notably by nurses and teachers, are also hoped to reduce in number with the concessions being made by the government in this budget, which also foresees a partial return to progressive and automatic promotions among civil servants.
The budget, which will be tabled for discussion on 30 October before final voting takes place a month later in Parliament, is clearly one which seeks to lift the lower classes and low and middle income earners. It also takes into consideration the demands of the country’s almost 700,000 civil servants and allows for a generalised increase of all subsidies paid to Portugal’s 3.6 million pensioners and social benefit claimants.
But while millions can look forward to pay increases (civil servants can expect an average of 68 euros more a month from next January) these additional expenses will need to be paid for.
Revenue generated from exports and tourism and a vastly improved economy has allowed Mário Centeno’s Finance Ministry the ability to balance the books, but taxes have also increased.
Based on provisional figures, the projected revenue from taxes contained in the state budget for 2019 will reach 45.6 billion euros, a new record.
The easiest target, as has been the case for successive governments in the modern era, is once again the country’s motorists.
Revenue from Portugal’s much maligned tax on new cars will once again rise above the projected inflation rate, with the fiscal revenue on vehicles leaving showroom floors being upped by 2.3 percent.
Fuel prices, which are already among the world’s highest, will rise once more, with the income from ISP fuel tax forecast to rise by 6.2 percent in 2019.
To complete the clean sweep of tax revenue increases on drivers is the boost in cash received from the annual IUC car tax, which is predicted to climb by 9.1 percent.
While these raises are linked to expected growth in new car sales, they are also connected to a spike in taxes.
Overall, Mário Centeno and his team are forecasting that the Gross Domestic Product will expand by 2.2 percent, while unemployment will continue to fall from its current figure of 6.9 percent to an average of 6.3 percent in 2019.
Public debt is also expected to improve, and will shrink to 118.5 percent of GDP. The budget deficit, which had spiralled to almost double figures at the start of the economic crisis, will stand at a mere 0.2 percent next year, having already fallen to 0.7 percent in 2018.
Other measures of note include a reduction in tuition fees, taxing renewable energy companies, cutting income tax on returning emigrants by 50 percent, while increasing levies on sugary drinks and tobacco.
The optimism exhibited by the Finance Minister and the Socialist Government in this budget was meanwhile also further enhanced by news that Portugal’s credit rating was restored to investment grade by Moody’s, which cited a decline in the nation’s debt burden and an increased resilience of the economy.
Moody’s had rated Portugal junk since July 2011, but have now joined Fitch and S&P in pushing up the country’s ratings.

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Edition 1501
17 November 2018
Edition: 1501

Read this week's issue online exactly as it appears in print.

Twitter

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