Direct net impact of new measures on budget balance ‘unfavorable’ and amounts to 0.8% of GDP, CFP reveals – Executive Summary

The Public Finance Council conducted an analysis of the state budget proposal for 2024 (OE2024), which revealed that the direct impact of the new measures on the budget balance is “unfavourable” and amounts to 0.8% of GDP.

The OE2024 proposal forecasts a positive balance of 0.2% of GDP, a decrease of 0.6 percentage points of GDP, equivalent to €1,507 million, compared to a surplus of 0.8% of GDP estimated for 2023.

According to the Ministry of Finance, the lower surplus for 2024 is due to the budgetary cost of economic policy measures, both new and adopted in previous years, as well as other budgetary pressures resulting from current legislation and signed contracts.

“According to the CFP’s calculations, based on the above information, the direct net impact of the new policy measures on the budget balance is unfavorable and amounts to €2,202 million (0.8 percentage points of GDP),” the CFP wrote in its letter.

The independent body that monitors compliance with budget rules in Portugal also explains that the carryover effect resulting from measures adopted in previous years and other pressures on the budget also has a negative impact on the budget balance of €2,392 million, which is equivalent to 0.9% of GDP.

“To counteract these impacts, POE/2024 has an implied positive impact on the budget balance for the overall scenario and other impacts of approximately €3,521 million (1.4 percentage points of GDP), which will offset approximately three-quarters of the impact of measures and budget pressures,” They explain.

Regarding the weight of public revenues, it is expected to rise by 1.3 percentage points to reach 44.7% of GDP. Increasing the tax burden from 35.3% to 35.5% of GDP will constitute an important contribution to increasing public revenues, despite the expected decrease in the weight of direct taxes (-0.4 points of GDP).

The weight of public spending in GDP is expected to rise from 42.6% in 2023 to 44.5% in 2024, with interest charges recording a further increase next year (€602 million), albeit less than the increase estimated for 2023 (€1,003 million). euro). .

Data included in the proposal also show that the Ministry of Finance expects the public debt ratio to correspond to 98.9% of GDP in 2024, which would represent a decrease of 4.1 percentage points of GDP compared to 2023.

Update to the CPP Fixed Policy Outlook published in September (Economic and Budgetary Perspectives Report), which includes new information from the Multilateral Fund and the policy measures expected in POE/2024,

The CFP confirms that the updated Fixed Policy Forecast exercise indicates a balance of 0.1% of GDP and a debt ratio of 98.7% of GDP in 2024, in line with the values ​​provided by the government.

However, they stress that the forecast is subject to risks such as the current geopolitical situation, the risk that some of the measures proposed by the government will not be implemented, or the possibility that tax revenues and contributions will be higher than what the Ministry expects. Finance.