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The General Government deficit reached 0.5% of GDP in 2018, continuing the nominal reduction trajectory observed in previous years. This result was better than expected by the Ministry of Finance and reflects a decrease in the deficit by 2.5 p.p. of GDP compared to the value recorded in 2017, in part due to the baseline effect from the recapitalisation operation of the State-owned bank Caixa Geral de Depósitos (CGD). Excluding the effect of temporary and one-off measures, there was an improvement of 0.8 p.p. of GDP achieving a balanced budget.


The primary balance persisted on an upward trend reaching a surplus of 6043 M € in 2018 (or 3% of GDP), more than three times the amount recorded in 2017.


Based on the information available and following the European methodology, correcting the budgetary deficit from the effects of the economic cycle and the temporary and one-off measures, the CFP estimates that the structural deficit corresponded to 0.7% of GDP in 2018. This was an improvement of 0.6 p.p. of GDP compared to 2017, pursuing a convergence trajectory towards the medium-term objective (MTO).

Regarding the assessment of compliance with the budgetary rules in 2018, the estimated structural balance change complies with: the general rule of an annual improvement required by the Portuguese Budgetary Framework Law (0.5% of GDP); the requirements of the preventive arm of the Growth and Stability Pact; and the recommendation of the Council of the European Union. The public debt rule was also complied with.


However, the budgetary developments in 2018 were not compatible with the expenditure benchmark. The CFP estimates that the nominal growth of the  primary expenditure net of discretionary revenue measures and one-off and temporary measures was above the recommended maximum increase of 0.1%. This means there was a deviation exceeding the threshold of 0.5% of GDP from which a risk of significant deviation from the convergence trajectory to the MTO can be noted.

General Government’s revenue grew 5.5% (i.e. 4604 M€) compared to 2017. There was a growth both in tax revenue and social contributions (4219 M€ or 5.9%) an in non-tax and non-social contributions revenues (386 M€ or 3.3%). tax revenue growth accounted for about three quarters of the increase observed in tax revenue and social contributions received. The tax burden increased by 0.9 p.p. of GDP, reaching a new historical maximum (35.2% of GDP).


As regards public expenditure, the growth rate of this aggregate accelerated from 1.6% in 2017 to 4.4% in 2018, when excluding the baseline effect resulting from the recapitalisation of CGD. This acceleration is mainly explained by two operations related to the financial sector: the capital increase of  Novo Banco and the call of guarantees related to the BES group of investors. The growth in primary current expenditure also accelerated to 3.3% in 2018, around half of that resulting from the increase in social benefits.

Date of last update: 30/05/2019

Budget Outturn . Report nº 6/2019 . 30 May 2019