Budget advisory group warns of risks of budget overspend

A unit set up to provide recommendations, support and advice to the government on keeping public spending in check has issued warnings on a number of issues including expenditure, the impact of tax reductions, and the poor and slow application of EU ‘bazooka’ funds.

The Technical Unit for Budget Support (UTAO) has issued a report which includes an evaluation of the Stability Programme 2024-2028 that was presented by the Ministry of Finances on April 15.

A number of risks were highlighted. For example, a fall in revenues from reducing IRS and IRC tax, as well as salary increases across several careers such as the security services and teaching professions were risks to balancing Portugal’s books.

Geopolitical instability induced inflation could also require temporary measures with an impact on expenditure, while an increase in geopolitical instability and insecurity risked greater armed forces expenditure.

The poor and slow execution of Portugal’s Recovery and Resilience Programme (RRP) was another risk since revenues expected from Brussels to finance it were dependent on meeting targets set out in the programme. 

Private-Public Partnerships too is another area of pressure, as well as State-backed finance lines, including some related to Covid-19.

The body, which falls under the aegis of the Portuguese parliament, calls for greater political consensus on strategic investments to resolve structural problems of a national political nature, adding that the Budget Framework Law needs revising which it has not been on repeated occasions.

The lack of reforms to this legislation is “a danger to the effectiveness of public policies and the sustainability of public finances” while reforming it would not cost money and would provide “more quality to the goods and services provided by the State, and more value to tax payers’ money”, says the report.

It adds that various reforms introduced in 2015 were never implemented and it regretted a lack of effort and conviction to provide sufficient means to the services involved so that these operational tasks could be completed.

However, it does admit two points that excuse the situation, including the post election government transition dates making legal reporting obligations to national and international institutions “humanly impossible” within the period stipulated.

On the other hand, it admits: “It is not certain that Portugal and the other Member States have to introduce a new medium-term budget planning document in September, 2024 given that changes to budget rules foresee new types of documents to be delivered”.