Surplus fund legality called into question

 In Budget surplus, Funds, News

Some legal beagles in Portugal are calling into question the legality of the Finance minister, Fernando Medina’s plan to set up a fund for development projects using budget surpluses as a ball to get the funds going in terms of investment.

The government insists the fund is legal and has the backing of the Tribunal de Contas (a public spending watchdog), but the Council of Public Finances disagrees.
The government wants to use budget surpluses made in 2023 and 2024 to set up a investment fund for the future for big ticket public infrastructure projects such as the high-speed rail link between Porto and Lisbon.
The plan is to have a fund up and ready so that when European bazooka funding ends in 2026, there will be a chest of money to help finance public works projects.
The President of the Tribunal de Contas, José Tavares, doesn’t see “any legal impediment” to setting up the investment fund using budget surpluses (currently at over €7Bn) because the law does not stipulate that such surpluses should be used to pay off the public debt or should be put away for a rainy day.
However, the Council for Public Finances (CFP) says that any budget surplus should be channelled towards reducing the public debt as foreseen in the Budgetary Framework Law and only then set some aside as a cushion for financial suability in case of adverse and unforeseen shocks. In other words, the government should look to its priorities of paying off its borrowing.
But the Tribunal de Contas says the issue is a “management question” not a “policy question” which can be taken as a preferential application for surplus reserves under Article 21 of the Budgetary Framework Law. In other words the law is unclear and open to interpretation.

What do you think? Should the government pay down its debs or plough them into the fund?