CFP alerts for deviation above the 0.5% of GDP threshold – Jornal Econômico

The Public Finance Council (CFP) warned in its report "Budgetary Evolution of Public Administrations 2018" released on Thursday that the nominal growth of primary expenditure net of discretionary measures on the revenue side and non-recurrent temporary measures above the recommended maximum increase of 0.1%, "which means a deviation above the threshold of 0.5% of GDP, from which a risk of significant deviation from the convergence path towards the Medium-term Objective can be noted" .

"This non-compliance contrasts with the reading provided by the structural balance, which is mainly explained by approximately two-thirds of the improvement in the structural balance if they are due to the decrease in interest charges that are excluded from the primary expenditure indicator," says the CFP

In the assessment that the entity presided by Nazaré da Costa Cabral made to the general government deficit, it is recognized that it reached 0.5% of GDP in 2018, resuming the nominal reduction trajectory observed in previous years. The result was better than expected by the Ministry of Finance and reflects a deficit reduction of 2.5 percentage points of GDP compared to the value of 2017, which includes a base effect resulting from the recapitalization operation of Caixa Geral de Depósitos. Excluding the effect of temporary and non-recurrent measures (one-off), the general government budget balance improved by 0.8 percentage points of GDP, reaching balance.

The primary balance has consolidated the upward trend, reaching a surplus of EUR 6043 million in 2018 (or 3% of GDP), more than three times that of 2017. On the basis of available information and following the European methodology, correcting the budget deficit of economic and non-recurrent measures, the CFP estimates that the structural deficit was 0.7% of GDP in 2018. This means an improvement of 0,6 percentage points of GDP compared to 2017, convergence towards the Medium Term Objective (MTO).

As regards compliance with the budgetary rules in 2018, the estimated variation for the structural balance complies with the general rule of annual improvement provided for in the Budgetary Framework Law (0.5% of GDP), the requirements of the preventive arm of the Stability and Growth Pact and recommendation of the Council of the European Union. Compliance with the public debt rule is also noted.

General government revenue grew by 5.5% (or 4604 million euros) compared to 2017. There was a growth in both tax and tax revenue (4219 million euros or 5.9%) and non-revenue fiscal and non-contributory (386 million euros or 3.3%). The growth in tax revenue accounted for about three quarters of the increase in tax and tax revenue. The tax burden increased by 0.9 pp of GDP, reaching a new record high (35.2% of GDP).

With regard to public expenditure, the growth rate of this aggregate accelerated from 1.6% in 2017 to 4.4% in 2018, excluding the base effect resulting from the recapitalization of CGD.

This acceleration mainly contributed to two operations related to the financial sector: the capital increase in the New Bank and the execution of guarantees related to the group of investors of BES.

Primary current expenditure growth also accelerated to 3.3% in 2018, with social benefits accounting for almost half of this growth.

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