Thursday, 1 December 2011

Portuguese State Budget was approved but it needs corrections.

The Portuguese State Budget (SB) was approved last wednesday (30th of November)with the votes of the political parties who support government (PSD and CDS) and the abstention of the Socialist Party. It is the toughest budget ever approved in Portugal with a progressive cut in summer and christmas bonuses of civil servants and pensioners (more than 600 euros up to 1100) and a proportional cut (2/14) when income is above 1100 euros, equivalent to two salaries.

Apart from a possible unconstitutionality of these measures, this Budget implements certain aspects of the memorandum with the troika, but departs from it in several important respects. First, the memorandum predicts a cut in transfers to regional and local governments of, at least 150M. euros and also predicts that civil servants' salaries should be freezed. Therefore, we would expect that other expenditures (not wages) would be cut at least in 150M. However, with the bonuses' cuts local governments save around 240M. euros. This means that instead of leading to a reduction in other expenditures the Budget leads to an increase in local exenditures (other than wages).

An additional problem is an error in calculating the state budget deficit in public accounts
(cash basis) of 297,4 million euros due to a consolidation problem (see my article in Publico newspaper today here). What is worrying about this mistake, not clarifyed yet by the Ministry of Finance, is that it may increase the Budget deficit in this amount, and also what it reveals in terms of lacking of cross checking information in the Ministry of finance.

In Portugal there are two seminal initiatives of civil society that scrutinize the budget and the budget process. The budget watch (2012 results will be available soon) and the open budget initiative. They start producing results. But it is also important that the Council for Public Finances, an independent body predicted in the memorandum is also implemented.


  1. Along the same general debt topic, this weekend Michael Hudson (distinguished Research Professor at University of Missouri) wrote:"Debt Slavery – Why It Destroyed Rome, Why It Will Destroy Us Unless It’s Stopped"

  2. Today, the Brits, too focused on defending their financial industry, decided opt for the "divorce" - "Europe's great divorce":