With the recent announcement by Pedro Nuno Santos (PNS) that the PS will abstain in relation to the initial and final vote of the OE, we have greater confidence that it will be approved. I’m not sure because in politics, as in other areas, even washing the baskets is a harvest. We still have all the debate and voting on proposals in the specialty ahead of us and surprises may arise with the so-called “negative coalitions.” For example, how will the votes be carried out on the reduction of the CRI, knowing that there will be proposals to lower the rate by 2 percentage points (pp), in addition to the 1 pp contained in the OE proposal?
It only seems to me that there is one way to approve the EO, which is to act as if there had been an agreement between PS and PSD, in accordance with the latest proposal presented by the government, that is, for the PSD to vote against the 2pp drop , which was his initial position. The PS, for its part, must respect what was mentioned by the PNS that the PS proposals must not contribute to the imbalance of public accounts and, in particular, vote in favor of a reduction of 1 percentage point of the IRC. In fact, you should for two different reasons. First, do not distort the EO in such a way that it gives the government a pretext to resign for having a distorted budget. Secondly, because it is important to check the viability of this budget and the promises for the future it contains.
An EO can and should be analyzed from a technical point of view, which takes time, and from a political point of view, which is faster and which is the topic of today’s article.
The budget proposals of the PSD of Montenegro and Sarmento have nothing to do with the PSD of Passos Coelho and Vítor Gaspar. Although they cut salaries, pensions and social benefits (CSI and RSI), going beyond the memorandum with the troika, the current government has more to do with António Costa’s PS in social benefits and increasing spending on pensions. In some points it even surpasses Costa’s left-wing PS, which has been closing agreements with different special careers, salary increases or subsidies of various kinds, without clear estimates of their future impact. Traditionally, it is the PCP and BE that make proposals of this nature, without taking into account their direct budgetary impact and the indirect effect on all other races, that can use an equality argument to support similar claims.
It also has some favorable measures for companies (reduction in the CIT rate, reduction in regional taxes, etc.). No wonder ChatGPT, despite some analytical errors (such as considering that there is an increase in the progressivity of the IRS) considers it a left-wing EO!
It is worth remembering what AD’s economic narrative and budget strategy was before the elections. I had the opportunity to discuss it on television with the current minister Miranda Sarmento and argue that it was completely unrealistic because she was extremely optimistic in relation to future economic growth (especially national and international projections). In short, the narrative was that there would be strong economic growth, especially from 2026 onwards, and that this would do three things: reduce tax rates (for families and businesses), but at the same time increase tax revenues and also the public spending through renegotiation with the different careers. Now, seven months later, these macroeconomic forecasts have been completely revised downwards (which will imply lower than expected tax revenues), but commitments to increase spending remain in place.
The PSD’s strategy is to turn it back into a party that “catches everyone” by giving to the largest possible number of people, public employees, pensioners and social benefit recipients, on the one hand, and if possible to private sector workers if possible. achieves to reduce taxes. Politically, what the PSD is doing is trying to recover its support base that it lost during the troika era. If we also consider the judicial police (agreement signed by the PS), the agreements that were made with the unions of the different careers (or were announced soon, in the case of nurses) cover almost half of the administration workers central (AC). It should be noted that in overall terms of public employment, the number of AC staff was significantly reduced under the troika and is now slightly larger than then.
This strategy can also be seen in what Miranda Sarmento said in the presentation of OE2025, when she mentioned that if there is budgetary margin at the end of 2025, it could be reinforced with an additional increase for pensioners.
A brief look at the main numbers of public administrations (including state, regional and local administrations), in table 2, also allows some preliminary conclusions to be drawn. In relation to the tax burden, it cannot be said that there is a significant drop (minus 0.1% of GDP is almost nothing), what there is is a reorientation of direct taxation in the IRS and the IRC (and more politically visible ) towards indirect taxation. . In relation to the weight of the “State” in the economy, the best indicator (without using structural indicators) is that of primary current spending, which is effective spending, excluding interest on debt and capital spending, that is, public investment, which is now accelerating. with the PRR.
We found, as expected, that during the troika period spending cuts occurred mainly in public investment and personnel costs, with salary cuts and the freezing of practically all careers in public administrations. In the years of the gadget there was a progressive thawing, but still with salary control, with partial salary replacement agreements for all the races. This meant that, also with the contribution of economic growth from 2015 to 2019, the weight of wage expenditure in GDP decreased.
What happens from 2024 (essentially the PS budget) to 2025? Added to the acceleration of investment is a marginal, but very small, increase in the weight of personnel expenses. What happens is that all the remuneration agreements that have already been made still have little impact on OE2025, they will have effects mainly in 2026 and 2027. The increasingly staggered payments in the coming years have a twofold reason. Economically, a lower natural budget impact. Politically, they are bait thrown at all these workers in now revalued careers. If you continue to support us until 2027, especially in the case of elections associated with a political crisis, you will know that we will implement these pay increases. But if we stop being a government, they won’t have them. This is Montenegro’s political-budgetary strategy that leaves the PS in a difficult situation. It is a true political trap that will require the PS to have a lot of capacity to effectively oppose it.
Regardless of whether this EO is, as ChatGPT claims, left-wing, there are two questions that deserve an answer. Does OE2025 contribute to the potential growth of the Portuguese economy? Is there budgetary sustainability in the strategy that is being implemented? I hope that the different public and civil society institutions that analyze public accounts will provide a response.
Source: Observadora
