Tax cuts and public sector pay rises are a 'fiscal risk'
The Budgetary Support Technical Unit (UTAO) warned today that tax cuts and public sector wage increases pose a risk to the budget balance projected in the Stability Programme, according to the analysis released today.
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Economia UTAO
In the assessment report of the Stability Programme 2024-2028, the unit coordinated by Rui Nuno Baleiras highlights that the budgetary impact of the adoption of new measures, compared to the budgetary scenario in unchanging policies presented by the executive, constitutes budgetary risks.
"If confirmed, and depending on its financial dimension, the new budgetary policy measures that may be adopted may constitute a downward budgetary risk", it states, pointing out as examples "the reduction of taxation in the areas of IRS and IRC and the permanent increase in personnel expenses".
The UTAO warns that "the permanent increase in personnel expenses resulting from remuneratory pressures at the level of service time replacement, remuneratory supplements and demands from other professional classes of the AP [Public Administrations], depending on the dimension and the time phasing in which they occur, constitutes a downward budgetary risk".
Among the risks, it points out the aggravation of tensions in the Middle East, which could lead to an increase in energy costs, the delay in the implementation of the Recovery and Resilience Plan (RRP), as well as additional expenditure in defence and security.
The UTAO also lists the "more regular occurrence of meteorological events", such as severe drought and the risk of fire, which may enhance "public intervention through the allocation of support to mitigate the effects of these extreme events", and risks associated with Public-Private Partnerships (PPP).
The technicians supporting the deputies also point out that the projection for 2024 corresponds to a less favourable budgetary framework than the previous one, since "the withdrawal of the budgetary stimuli relating to the transitory measures (covid-19 package and inflation) and the forecast evolution of revenue are not sufficient to compensate for the increase in primary expenditure with permanent measures and debt charges, which is reflected in the erosion of the balance".
It also notes that the Stability Programme "projects a rate of growth in expenditure higher than that of revenue throughout 2024 and up to 2027" and that the forecast revenue is 6.3% above the provisional execution of 2023, based on the increase in indirect taxation and social contributions.
It also emphasises that the document "does not provide information on budgetary policy measures", with the UTAO having requested, "unsuccessfully", the Ministry of Finance for a list of the respective policy measures.
"The main budgetary policy measures have a direct forecast impact on the balance of --3.7% of GDP (--10.4 billion euros) in 2024", it states.
Read Also: OE2023: Starting point for 2024 "more favourable" than expected (Portuguese version)
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