EU Praises Portuguese Fiscal Policy

by Ulrika Lomas, Tax-News.com, Brussels

26 December 2011

The European Commission has delivered a report on progress made by the Portuguese government in its efforts to bring the nation's fiscal house into order.

The report concludes that overall Portugal has made good progress on a number of fronts, entitling the nation to a third tranche of European funding, worth EUR5.3bn (USD6.9bn).

The Commission noted that during 2011 Portuguese authorities were forced to address 'sizeable slippages' on budgetary targets. These were counteracted by a one-off surcharge on personal income tax and an increase in the value-added tax rate on electricity and natural gas, brought forward from next year to October 1, 2011. As a result of these efforts, and the transfer of banks' pensions funds to the state social security system, the government will achieve its 2011 deficit target of 5.9% of Gross Domestic Product.

The Commission however noted that “this one-off measure will only be exceptionally used to meet the deficit target for this year and has to be seen in the context of a highly ambitious 2012 budget.”

Welcoming proposed fiscal policy for the coming year, the Commission said the 2012 budget contains "bold and credible measures of a permanent nature" to address fiscal sustainability, mainly focused on retrenchment in public expenditure. The Commission was optimistic on this basis that the 2012 deficit target, of 4.5% of GDP, could be attained.

The Commission further reported that the nation's banking sector is working towards meeting higher capital requirements as required under the program. However, the Commission urged continued efforts by banks to deleverage whilst safeguarding adequate credit for dynamic sectors to facilitate economic growth.

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