This year’s deficit target of 4% is under pressure as never before as Portugal's Finance Minister Maria Luís Albuquerque struggles to knock together a budget with a current deficit that has worsened by €389 million.
Albuquerque has been helped along by a growth in tax revenue but government expenditure is way off target as state employees resist redundancies and the Court of Auditors rejects pay cut proposals.
The Minister will struggle to hit the target unless taxes rise, or unless she gets expenditure under control, or a combination of both.
Monday’s posting on the Council of Ministers’ website confirmed that Portugal's tax revenue is ahead of target but slippages in expenditure have cancelled this out and that hitting the deficit target of 4% is not guaranteed.
In the first seven months of the year, the deficit reached €5.8234 billion, which represents an increase of €389 million over the previous month. This is not happy reading at this stage of the year.
There has been a 3.8% growth in tax revenue, around €735 million more than in 2013, which exceeds the target of 0.3% growth.
If this holds, Albuquerque can look forward to an extra €1.2 billion more tax from the country’s increasingly poorer population and its business sector by the year end but her main problems are on the expenditure side, particularly public sector wages and state procurement of goods and services.
Public sector wages actually have increased by 7.4% against a target of an 8.4% reduction. This is seriously out of kilter and is a stark demonstration of Passos Coelho’s inability incisively to deal with the public sector despite media briefings and sound bites to the contrary.
The second problem area is the state acquisition of goods and services, particularly in the health sector, where overall it should have fallen by 3.2% but in reality has grown by 0.3%.
Albuquerque finally may be torpedoed by the implementation of new national accounting rules, emergency interventions in public companies or the final funding outcome of the Espírito Santo collapse which she hopes to keep off-balance sheet and in the private sector for as long as possible.
