Government will increase budget deficit in case of recession
If a recession grips Europe and the economy deteriorates, the Portuguese government will increase the budget deficit according to the Minister of Finances, Fernando Medina on Friday.
The minister said that the Government would not stick firmly to this year’s budget deficit target if economic developments are not favourable.
“If it does not go so well, we will not stick to the objectives in budgetary matters and we will let the automatic stabilisers float,” he said, noting that, in that case, the deficit could be higher than the government expects for this year.
Automatic stabilisers correspond to budgetary variables, both on the revenue and expenditure side, that react automatically to developments in the economy, which have an impact on the budget balance.
For example, when the economy is worse, unemployment increases and therefore expenditure on unemployment benefits increases and (tax and social security) revenue decreases, which has an impact on the budget, but in theory, minimising the impact of the difficult economic period.
“In times of difficulty, the stabilisers work and the deficit can operate within the margins that the treaties allow and so the state supports the economy which prevents a possible crisis from deepening,” he said. However, Medina believes that it will not be necessary to reach that moment. Lusa/Inês Lopes – Portugal Resident.