Brussels warns Portugal that spending plans are too excessive

The European Commission has warned the Portuguese government that its spending plans for the State Budget are too excessive and put at risk the country’s ability to balance its books.

The EC has only commented on spending plans already announced and legislated for, but the warning comes at a time when fresh negotiations are underway over new, stricter member-state spending rules.

The new rules require that countries with a deficit of more than 3% of GDP should make a fiscal adjustment – lowering their budget balance under a country-specific plan – of at least 0.5% of GDP a year, and aim to cap member state’s total debt at 60% of GDP.

Portugal’s total accumulated debt stands at around 100% of GDP. At a time when the government is preparing an outline draft of its State Budget for 2025, the EC has warned Portugal’s Finances minister Joaquim Miranda Sarmento that he will have to be less generous in his public spending and tax breaks policies to avoid an overspend.

According to an EC report on member-state budgetary guidelines, Portugal was one of the countries in the euro zone with an over-expansionist public spending policy, coming only behind Lithuania and Croatia.

This year, the outline State Budget for 2025 designed by the previous minister of Finances, Fernando Medina, was the most spendthrift in the eurozone with a package of spending measures that would inflate Portugal’s budget balance by 1.8% of GDP.

Most of the spending cake is primary current expenditure (excluding interest charges) financed by national revenue – through measures that the Commission classifies as ‘other than support for energy price reductions or support for refugees’.

But, in a scenario of invariant policies, that is, in which the currently legislated measures remain in force, the European Commission expects Portugal to remain among the most expansionary, with a set of measures that increase the budget balance by about 0.5%.