CFP: Pandemic response measures responsible for a quarter of the budget balance review

Conselho de Finanças Públicas estimates that 80% of the impact on the balance results from spending on subsidies (more than half) and the loss of contributory revenue.

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The budgetary response measures to the pandemic implemented by the Government represent a quarter of the revision of the balance provided for in the Supplementary Budget proposal, compared to the State Budget proposal for 2020. The calculations are made by the Public Finance Council, which in the report published this Wednesday fair, estimates 80% of the impact on the balance results from expenses with subsidies and loss of contributory revenue.

“This estimate that points to a direct budgetary impact of those measures on the balance of 3408 million (1,7% of GDP) is based on the quantification of measures carried out by the MF and the additional information requested from the MF, still incomplete and not answering questions relevant ”, explains the report on the analysis of the revision to the State Budget for 2020.

The body chaired by Nazaré da Costa Cabral notes that although “conditional on this limitation”, calculations indicate that about 80% of the impact on the balance is explained by the expense with subsidies (2.081 million euros) and the loss of contributory revenue (550 million euros), "resulting from the exemption from the Single Social Fee in the scope of the lay-off and support to the family".

The CFP clarifies that “according to the explanation advanced by the European Commission in the scope of the evaluation of the 2020 Stability Program for Portugal, it is clarified that following the activation of the general escape clause, the measures adopted in the budgetary response to the Covid pandemic -19 are not treated as temporary or non-recurring measures (one-offs) and are therefore not excluded from the structural balance estimate ”.

It also stresses that expenditure on the exceptional measures of combat and mitigation adopted in the first phase of the pandemic, that is, between March and May, and those recently approved under the Economic and Social Stabilization Program (PEES), “with an impact mainly on public expenditure total 3.498 million euros ”.

"This amount justifies about 80% of the update of the public expenditure forecast for 2020, of which more than half is due only to expenditure on subsidies", he indicates, adding that, on the other hand, "to mitigate the impact on expenditure, the new MF budget forecast for 2020 has implicit financial support from the European Union, within the scope of the financial contribution of measures to respond to the Covid-19 pandemic, which, according to CFP calculations, will amount to approximately 600 million euros ”.

Financial support to entities external to the general government sector, which includes Novo Banco and TAP, and the reinforcement of the financial contribution to the European Union, justify 1.700 million euros of public expenditure, “accentuating the revision of the balance compared to that provided for in OE / 2020 ”.

Even so, the CFP emphasizes that the figures related to the budgetary impact of the measures do not include any effects on the balance that may result from the liquidity measures planned to support companies, families and other entities. “The current PAOE / 2020 and PEES do not present in a clear and systematic way an estimate for the materialization of these measures or a global value of them”, he explains, highlighting “the flexible payment of tax and contributory obligations, the moratoriums on credit to housing and corporate loans, export credit insurance with State guarantees and credit lines also guaranteed by the State, including lines for treasury financing and long-term investments ”.

“In this context, it is important to point out the possibility that this support may constitute a budgetary risk, particularly in cases where the beneficiaries (companies and families) fail to fulfill their obligations, which would imply an assumption of these responsibilities by part of the State, with a consequent negative impact on the balance and debt of public administrations in the coming years ”, he adds.

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