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Portuguese Budget Receives Cautious EU Nod

by Ulrika Lomas,, Brussels

09 February 2016

The European Commission has said that revisions to Portugal's draft Budget for 2016 will better enable it to meet deficit reduction goals, although it is of the view that Portugal remains "at risk" of non-compliance with EU fiscal rules.

The Portuguese Cabinet adopted the revised Budget on February 5, following what Vice President Valdis Dombrovskis called "intense political and technical contacts" between Portugal and Brussels to ensure that the Budget proposal complied with EU requirements.

The revised Budget includes additional spending cuts worth 0.2 percent of gross domestic product (GDP). It also includes further increases to certain consumption taxes, such as those on gasoline and tobacco. Most of the tax measures in the draft Budget are expected to remain intact, including reductions in the crisis tax on incomes and the value-added tax on restaurants.

Dombrovskis said that as a result of these revisions, a rejection of the budget by the Commission has been avoided. He recalled that, last year, the Council recommended that Portugal should achieve a structural effort of 0.6 percent of GDP in 2016. He said: "Today, following the Portuguese Government's latest commitments and updated fiscal data, the structural effort in 2016 is estimated at between 0.1 and 0.2 percent of GDP. This is a deviation of slightly below 0.5 percent and therefore avoids a rejection of the budgetary plan."

However, he added that the draft Budget remains "at risk of non-compliance with the rules of the Stability and Growth Pact" and the Commission has urged the Portuguese authorities "to take appropriate steps to ensure that its 2016 Budget complies with the fiscal rules."

"We need to remain very attentive," Dombrovskis said, "...we cannot be certain that the Portuguese Budgetary Plan offers enough reassurance to correct the excessive deficit in 2016." He also noted that Portugal's sovereign debt is still "very high" at 130 percent of GDP.

The Commission is due to reassess Portugal's compliance with its obligations under the Stability and Growth Pact in the spring of 2016.

TAGS: compliance | tax | European Commission | value added tax (VAT) | Portugal | gross domestic product (GDP) | budget | individual income tax | Europe

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