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The budget balance of the Portuguese municipalities was 447 million euros (M€) in 2018, a reduction of 27 M€ compared to the previous year. This evolution differs from the Ministry of Finance’s forecast presented in the State Budget for 2018 (SB/2018), which anticipated a positive balance of 948 M€ for local administration. This value was then revised to less than half (407 M €) in the State Budget Proposal for 2019.


Municipalities’ revenue grew 3.1% in 2018 to 7985.4 M€, less than expected in the SB/2018. The increase resulted from the positive contribution of tax revenues and from the evolution of transfers, namely those from the European Union (EU), which more than offset the decrease in the remaining components.


Tax revenue grew 7.1% (i.e. 216 M€) amounting to 3246.4 M€, below the SB/2018 forecast. This lower than expected growth was due to the evolution of the property tax IMI and of the municipal surtax (derrama in Portuguese), notwithstanding the higher than expected growth of the property transactions tax IMT. As for transfers, in 2018 municipalities received more 97 M€ than in 2017. Of this increase, more than half (62 M€) resulted from higher transfers from the EU, which contributed 0.8 p.p. to the annual change of revenue. Transfers from the State to the municipalities under the local Finance Act increased 1.4%, in line with the provisions of the SB/2018 (1.5%).


The expenditure of the municipalities grew 3.7% in 2018, totalling 7538.5 M€. The outturn of capital expenditure (which comprises investment) was quite short of what was expected in the SB/2018. This underperformance of capital expenditure counterbalanced the higher than forecast increase in primary current expenditure resulting from the compensation of employees. The unpaid expenditure of the municipalities increased slightly in 2018 (by 10 M€), due to the higher non-financial liabilities, despite the decrease of the bills to pay (-50M €) and arrears (-10 M€).


Regarding debt already overdue and arrears, despite the overall improvement of arrears, there were worsening situations: two municipalities increased arrears by more than 1 M€ since the beginning of 2018.


The total municipal debt subject to the legal limit declined in 2018: excluding non-budgetary debts and the exceptions legally allowable there was a reduction of 470 M€ in 2018. Based only on this indicator, 24 of the 308 municipalities were above the total debt limit on December 31, 2018, which constitutes an improvement over the 28 municipalities in this situation at the end of 2017. However, some cases of worsening of the financial situation are recorded.


The average payment period remained substantially at the same level as in December 2017, in line with the 30-day general rule for the payment of commercial transactions.

Date of last update: 16/05/2019

General Government Sectors . Report nº 4/2019 . 16 May 2019