Local Government Budget Outturn in 2021

The assessment of Local Government outturn in 2021 is limited by the fact that the definitive and complete data on the final accounts of the 308 Portuguese municipalities are not yet available. In particular, for the year 2021 there is lack of information: on the average payment periods of all municipalities; on the budget outturn of 9 municipalities; on the unpaid expenditure of 31 municipalities; and, on the total debt of 17 municipalities. The CFP also notes also, in what regards debt, the information used is of a provisional nature, namely because it does not fully correspond to validated information. Information relating to the 4th quarter was used in those cases where information on the finalised accounts are still missing, particularly as regards the contribution of municipalities’ participated entities to total debt. It was also necessary to complement the information available in the Information System for the Local Government Sub-sector (SISAL), run by Directorate General for Local Authorities (DGAL), with the accounts of some municipalities available on the respective websites.

Thus, this Report is based on the public budget accounting figures for 299 of the 308 Portuguese municipalities (representing 98.1% of the effective expenditure of 2019). In this universe, the Local Government will have presented a budget deficit of 15 million euros (M€) in 2021, the first since 2013, a result which was, however, lower than that forecast by the State Budget for 2021. The increase in municipal expenditure in 2021, which was higher than the increase in revenue, contributed to this performance, although the latter aggregate has recovered from the fall recorded in 2020.

The municipalities revenue increased by 11%, more than double that forecast in the State Budget for 2021 for the local sub-sector (4.8%). Transfers and tax revenue evolved much more favourably than forecast in that budgetary programming document. The positive performance of transfers is explained by sharing of State taxes with local authorities and by the transfers from European funds to co-finance municipal investment, as well as the transfer of funds to support the decentralisation process underway. The growth of tax revenue was almost exclusively due to the strong increase in property transaction taxes (IMT) revenue (+37.7%), contrary to the decrease forecast in the State Budget for 2021.

However, this favourable evolution of revenue was still insufficient to offset the increase of 14.6% in municipal expenditure in 2021. This was driven, in equivalent terms, by the growth of current primary expenditure and by the increase in capital expenditure, particularly investment expenditure. The increase in current primary expenditure resulted from increased expenditure on compensation of employees and the acquisition of goods and services, and, to a lesser extent, on transfers and subsidies paid by municipalities, as a result of the measures to support households and companies adopted in response to the pandemic crisis.

Notwithstanding the limitations regarding the complete availability of budgetary and financial information, there is evidence that the outstanding expenditure of municipalities will have decreased in 2021, both in terms of non-financial liabilities and accounts payable. On the other hand, the debt already due and in arrears will have remained at the same level as in 2020, although some municipalities have recorded a worsening of this indicator.

The information regarding debt at the end of 2021 is available for 292 of the 308 municipalities, which represented 97% of the total debt in 2020. In this set of municipalities, the total municipal debt – financial and non-financial debt – considered for the purposes of the legal limit was reduced from 3.8 to 3.6 billion euros. Based only on this indicator, 16 of the 292 municipalities were above the total debt limit on 31 December 2021 (one less than at the end of 2020). This evolution reflects the decrease in debt observed in 185 municipalities in the global amount of 340 M€ having more than compensated the increase of 215 M€ reported by the remaining 107 municipalities.

Based on these data, which are of a preliminary nature and with the limitations indicated above, the continued impact of the pandemic crisis is visible, particularly on expenditure, although there is also some recovery, namely in relation to tax revenue of municipalities, which is not unrelated to the greater dynamism of the real estate market. The increase in capital expenditure (e.g. investment) supported by capital transfers, namely European funds, should also be noted. Even so, the available data show some deterioration in the financial capacity of municipalities, putting at risk the presentation of a balanced budgetary balance for the subsector as a whole.

The limitations on the available information, to which the delays and obstacles in the implementation of the SNC-AP in local authorities continue to contribute, as well as various difficulties in the legally foreseen reporting, are still visible in 2022, without prejudice to the progress recorded in the meantime. By way of illustration, in the Budget Execution Summary published in August, relative to July 2022, the Directorate General for the Budget (DGO) had to estimate the execution of 9 municipalities that had not yet reported the budgetary information relative to July 2021, and for the same month in 2022, information regarding 69 municipalities is missing (which compares with 27 and 280 missing municipalities, respectively for the immediately preceding and current year, for the July 2021 summary).

Given these developments, in order to ensure greater transparency of the fiscal and financial evolution in the sub-sector, it will be fundamental that the municipalities with missing information (and other local authorities and entities) provide the information under the legally established terms, particularly to the DGAL, and comply with the duty to publish the documents of accountability on the respective institutional websites, a respect for the commitment to transparency that does not always occur.

Date of last update: 28/09/2022