Deceleration implies more restrained but "unrealistic" optimism – The Economic Journal

Deceleration implies more restrained but "unrealistic" optimism - The Economic Journal

The Portuguese economy will continue to grow, but at a slower pace until 2023. At the same time, the specter of the budget deficit disappears from public accounts and from next year, the Portuguese will have a surplus. This was the picture that the Minister of Finance presented this week and sent to Brussels to receive the European Commission's stamp. However, it is less optimistic than it was a year ago.

In the Stability Program (PE) 2019-2023, Mário Centeno wanted to clarify the scenario with which the future Government can work. And in the year of multiple elections the message was repeated several times. "This was the first program in a context of true stability," Centeno said in the EP presentation.

The downward revision of the growth of the national economy for this year was already expected and the finance minister confirmed it. After 2018, GDP grew by 2.1%, Finance estimates an expansion of 1.9% this year, three tenths below the target registered in the State Budget for 2019.

According to the EP, with growth supported by the dynamics of investment and exports, the slowdown compared to the previous year stems from the lower contribution from domestic demand. Compensation comes only "partially" and an improvement in the contribution of net external demand.

João Vieira Lopes, president of the Confederation of Commerce and Services (CCS), considers, however, that "the combined evolution of exports and imports seems unrealistic." The representative of the businessmen pointed out that the EP points out that the growth of imports "practically in line with exports" would allow, in conjunction with the respective deflators, to obtain an overall balance of positive goods and services over the whole period ".

The projection for 2020 is also 1.9%, with the economy expanding by 2% in the following two years and 2.1% in 2023. The 2.3% target registered in PE 2018-2022 is thus delayed

For its part, the deficit estimates of 0.2% of GDP for this year have remained. However, the Executive is less optimistic for the next four years. Despite predicting a surplus already in the next year, it now projects that it is 0.3%, which compares with 0.7% last year. By 2021 it estimates a surplus of 0.9% and in the following two years of 0.7% – compared with 1.4% and 1.3% in the previous program.

Government signs reduction of 200 million in IRS

In the EP, the government again signaled this year a reduction of 200 million euros in the IRS, after having inscribed a measure in April last year that provided for a cut of 200 million euros in the IRS in 2021, not specifying how the tax which falls on families would be reduced at this time. In the document, handed over to Parliament, Finance is now moving forward to the "reduction of tax rates" in 2021, but it also does not go into detail.

In the presentation of the document, Mário Centeno said only that this change "is offset by the review of tax benefits", which was also foreseen in PE 2018-2022. This compensation will imply, according to the data now disclosed, a reduction of EUR 270 million in tax benefits at a rate of EUR 90 million per year between 2020 and 2022.

In other words, the EUR 180 million collected from the revision of tax benefits in 2020 and 2021 almost offset the EUR 200 million of the tax rate review in 2021, leading Centeno to stress that "there is almost stability in the measures" that the Government puts on the tax side. It should be recalled that last year the Government launched a working group to review the tax benefits status (EBF) with a view to reducing injustices. The economist Francisca Guedes de Oliveira was chosen to coordinate the group of 12 people who will present a report on the revision of the EBF.

The former Secretary of State for Tax Affairs, Rogério Fernandes Ferreira, points to the possibility of creating an extraordinary tax. "Without an undesirable increase in the overall tax burden and in terms that do not undermine the effort to raise foreign investment – which should be promoted – there seems to be room for, if necessary, consideration of the creation of an extraordinary, temporary and special tax , whose revenue is exclusively earmarked for the amortization of the public debt, so that the country can face new environmental, energy and economic challenges that are expected for future years ", says Rogério Fernandes Ferreira.

Article published in issue no. 1985 of April 18 of Jornal Econômico

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