In the final stretch of the legislature public investment shows signs of recovery, with a slight increase in 2018 compared to the previous year. However, a detailed radiography reveals that the new investment is still far from sufficient to compensate for the depletion of what has already been achieved, which has implications for future production capacity.
Gross Fixed Capital Formation of general government increased to 3,965.2 million euros in 2018 – compared to 3,563.5 million euros in the previous year, according to the National Accounts by Institutional Sector, released by the National Statistics Institute this week. On the other hand, consumption of fixed capital stood at 5,545.3 million euros last year, which translates into a difference of 1,580.1 million between the two components in 2018.
Despite the technical difficulty in accounting for the current devaluation of capital and obsolescence of equipment, the relationship between these two forces contributes to assess the current devaluation of capital. The conclusion is that Portugal continues to register a deficit in the replacement of the stock of public capital (see infographics).
"This situation is very serious, since if the formation of new capital invested does not even restore the consumption of fixed capital, then, after a few cycles, the product will be reduced and income and expenditure will also be reduced", explains the economist João Duque.
The opinion is shared by the economist and SPD spokesperson for Public Finance, Joaquim Miranda Sarmento, who still acknowledges that it is "not impossible to exclude that part of the existing capital may not have to be replaced, since there is always some level of redundancy ". However, "the difference is too high to be below that threshold".
The two economists are unanimous in identifying as one of the main consequences in the medium and long term for the economy the impact on productivity.
João Duque warns that the future consequences will be even more challenging in the context of the aging of the Portuguese population. "What we need is a lot of investment (capital) that allows us to overcome in productivity what we will lack in work," he said. "The very survival of the state is concerned because with fewer people working and more retirees receiving pensions, what is expected in public service cuts? A disgrace. It may be a slow agony, but it will always be agonizing. "
Miranda Sarmento says, however, that a public investment around 2% or 2.5% of gross domestic product (GDP) "is enough for what Portugal needs." "It has to be managed with strategy and rigor," he adds. "The problem of public projects in Portugal is that, as a rule, they are not based on a long-term vision of improving the competitiveness of the national economy. And of course, in many cases they also fail in cost-benefit analyzes. "
Under the Government's goal
The slight rise in public investment continues the trend started in 2017, when it recovered from the 1995 lows recorded in 2016. But it remained below the Government's target of 2.1%.
This week the INE announced that last year's deficit fell to 0.5% of GDP, being two tenths below the estimate of the Finance and sagging as the lowest value ever in democracy. In an election year and on this basis, the Government predicts a deficit of 0.2%, but wants to go further in public investment and in the State Budget for 2019 estimates an increase of 17.1% over the previous year, to 4,853 , 4 million euros. The goal is to close the legislature with a larger investment than the previous Government.
Article published in the 1982 issue of March 29, Jornal Econômico