Economists heard by Lusa say that the finance minister seems to be losing influence in the government and his speech contributed to lower expectations regarding the State Budget for 2020 (SO2020).
“The most critical point in drafting this SO 2020 is the role of the finance minister. Some recent measures seem to suggest that Mario Centeno is losing influence in the government, ”Susana Peralta, a professor at the New School of Business and Economics (Nova SBE), told Lusa.
The expert in public economy pointed out that “the case of PPP (Public Private Partnerships), which went from the Ministry of Finance to the Economy, to change the rules for their evaluation, is paradigmatic and dangerous”, adding that "By the beginning of this legislature, public employment had left the hands of the Ministry of Finance after 17 years."
According to Susana Peralta, “Mario Centeno was a key figure of the past legislature” and "it would be a bad sign that now it loses centrality, in a scenario of greater political uncertainty and slowing down the world economy.
According to Ricardo Cabral, economist and professor at the University of Madeira, “the speech of the politicians, namely the Minister of Finance, contributed to lower the expectations” regarding the OE2020 proposal, “in the first place, by almost maintaining the expectation for the deficit. 2019 (at 0.1% of GDP) ”.
And the economist also pointed out the positions of the Ministry of Finance in relation to salaries of civil servants, pensions and public investment.
Other critical points pointed out by Susana Peralta in the OE2020, whose proposal should be presented in a week, are public investment and the National Health Service (NHS).
"Public investment was the weak point of the last legislature and there is pressure for the Government to show service in this area," said Nova SBE's professor, continuing that it will be necessary to see how the Government will make investment compatible with budgetary requirements, in a scenario of slowdown in the world economy.
Regarding the NHS, Susana Peralta anticipated that “it will be one of the critical themes in the OE2020, in which the Government risks its reputation”.
For Ricardo Cabral, “one of the first critical points” of the OE2020 “will be the Government's expectation on the execution of 2019”. “If the April 2019 forecasts are maintained, notwithstanding the good performance in 2019, the basis for the 2010 Budget will not be the best, which will nonetheless influence the O2020 proposal and the special negotiations in the Assembly of the Republic”, He stressed.
According to the professor at the University of Madeira, other critical points will be the proposals for the increase of civil servants, public investment and extraordinary increase of retirement pensions.
Economists polled by Lusa consider that the 2020 State Budget should include a policy of public service reform, more public investment and measures to lift the National Health Service (NHS) from the current "critical state".
"In addition to the budgetary rules, what I would like to see in the State Budget is a new policy, which allows for greater economic growth and greater competitiveness of the Portuguese economy," Joaquim Miranda Sarmento, professor of finance at ISEG – Lisbon, told Lusa. School of Economics & Management.
The economist specified that “a public service reform policy is needed to better manage taxpayer resources with better-performing public services at a lower cost”, while also considering “a comprehensive reform of public expenditure”, “a reducing the tax burden on businesses and households ”,“ a reorganization of the tax system and tax benefits ”and“ a policy of encouraging investment, innovation and exports ”.
For Ricardo Cabral, professor at the University of Madeira, “public investment should grow at very high rates (ideally, over 20%)”, admitting that “it depends on a careful choice of public investment projects, which should aim at improve the country's macroeconomic sustainability ”. According to the economist, “on the other hand, civil servants' salaries should increase by at least 2.5%. ” and “all pensions, including the highest, should rise above the inflation rate”, also pointing to an increase of about 2.5%.
Ricardo Cabral stressed that “for too many years the purchasing power of millions of Portuguese people has been eroded by inflation”, also defending the recruitment of more cadres and officials for public administrations.
According to Susana Peralta, a professor at the New School of Business and Economics (Nova SBE), "It is absolutely essential that the government be able to do what is necessary to remove the National Health Service from its critical state."
"This is a challenge of this legislature and the ability of the social state to fulfill its fundamental role in times of uncertainty and inequality," added the public economy expert.
Economists anticipate several risks in the State Budget for 2020, including the government's willingness to get support from the PCP and Left Bloc, which can put pressure on the public accounts.
“The problem of drafting the State Budget 2020 (SO 2020) is getting worse as the Government, in order to get the favorable vote of the Left Bloc (BE) and the CFP, which wants to break the criteria of the Stability and Growth seems to be available to negotiate many measures that increase spending structurally, ”said João Borges de Asuncion, a professor at the Catholic University, speaking to Lusa.
The economist gave examples of salary increases in the civil service, extra increases in pensions, increases in National Health Service (NHS) expenditure, lowering of VAT on electricity and the reconfiguration of the IRS through increases in deductions.
"The situation is potentially dangerous for the public accounts, as the Government will do its utmost to obtain the support of the PCP and the BE, even if it appears in the form of abstentions," said João Borges de Assunção.
For Ricardo Cabral, professor at the University of Madeira, “the OE2020 is already largely predetermined” by the draft budget plan, in an invariant policy scenario, submitted to the European Commission on 15 October, “where it is understood that an improvement is needed. structural balance by 0.5 percentage point (pp) of GDP, perhaps corresponding to a 0.7 pp improvement in nominal GDP GDP ”.
According to the economist, “this represents a huge budgetary adjustment”.
Joaquim Miranda Sarmento, Professor of Finance at ISEG – Lisbon School of Economics & Management, considered that the “OE2020 should, from a budgetary point of view, reach the Medium Term Objective”, warning that the reduction of the structural deficit in the last four years is due “exclusively to the reduction of interest expense on public debt and to dividends and corporate income tax of Banco de Portugal and, since last year, also of CGD (Caixa Geral de Depósitos)”.
However, the economist pointed out that in the draft budget plan sent by the Government to Brussels on 15 October, “The structural deficit went from 0.3% in 2018 to 0.5%”, warning that this is an aggravation that places Portugal “on the threshold of the minimum structural adjustment rule”.
“Violating this rule could mean that the European Commission could open an Excessive Deficit Procedure”, warned Joaquim Miranda Sarmento, adding that “so what the SO2020 will have to contain in its proposal is a set of measures that, at least allow the structural deficit not to worsen ”, which, in its view,“ implies at least discretionary measures of 0.2% GDP ”.
According to Susana Peralta, professor at the New School of Business and Economics (Nova SBE), “the government has the challenge of proposing an SO that can muster the necessary support in parliament” and, “contrary to the first year of 'Geringonça', in which the EO was going to replenish income and with that guaranteed approval from the left of the PS, this year it is still unclear what will be the negotiation of the measures that the Government has in mind ”.
The public economy expert added that “of the loose measures that have been announced, probably to test the pulse of the opposition, there are some that could be used to please the left and serve as a 'bargaining chip' for others,” she said. In this sense, income pooling and the 55 million package for higher education.
João Borges de Asunción also stated that “the draft State Budget 2020 that the Government sent to the European Commission does not meet the criteria of the preventive arm of the Budget Treaty”.
According to the Catholic professor, "the main problem is that the government intends to have relatively large increases in nominal expenditure in the context of very low inflation rates."
“In addition, as it has done over the last parliamentary term, the Government does not appear to be committed to the structural deficit reduction rules as calculated by the services of the European Commission,” said João Borges de Asunción, recalling that in recent years this This strategy enabled the nominal deficit targets to be met, "though only with historically high volumes of budget captivations."
However, the economist warned that next year, "when the scenario of a slight economic slowdown seems most plausible", that "fiscal strategy is even riskier".
The government has pointed to December 16 as the "indicative date" for the submission of the state budget proposal for 2020 in parliament. The global final vote is scheduled for February 6.