Portugal expects less austerity and healthier state finances

LISBON, Portugal – Portugal’s anti-austerity government said Thursday it can substantially reduce the country’s budget deficit in coming years without cutting pay or pensions or increasing income tax.

The government forecasts the deficit will fall from 4.4 per cent of GDP last year to 2.2 per cent this year and 1.4 per cent in 2017 amid cuts in expenditure, including reductions in the number of government workers.

Finance Minister Mario Centeno said the government expects the economy to grow 1.8 this year and next.

The minority Socialist government that came to power five months ago says Portugal will abide by its commitments as part of the eurozone. But some European officials are alarmed by its scrapping of austerity measures, such as restoring government workers’ pay that was cut and four public holidays that were eliminated to improve productivity.

Portugal has struggled to generate wealth since the turn of the century, recording average annual growth below 1 per cent. Meanwhile, government, corporate and household debt soared. It needed a 78 billion-euro ($88 billion) bailout in 2011 after years of overspending.

Officials noted last year’s deficit would have been 2.8 per cent had the government not spent 2.5 billion-euro on a cash injection to save Banco Internacional do Funchal.

Planning Minister Pedro Marques said that by 2020 the government would inject some 25 billion euros — about half of it from the European Union — into the economy through investments in education and urban renewal, among other areas.