Government expects surplus, but Finance Council anticipates deficit

O Public Finance Council (CFP) considers that the budget forecasts of the proposed State Budget for 2027 (OE2027) are plausible, but calls for more efficient management of resources in the State.

The government's budget proposal envisages an economic growth of 2.3% this year and 2.1% in 2027 and balanced accounts this year and a surplus of 0.1% in 2027.

According to the opinion released today, the CFP considers that the trajectory of the budgetary balance in the OE2027 is plausible, and the institution also updated its estimate for a balance from 0.1% of GDP to 2026, above that predicted by the Government (0,0%) but below 0.2% projected in September.

For 2027, the CFP projects a deficit of 0.1% of GDP, representing a difference of 0.2 p.p. of GDP compared to the forecast of finance.

This is due to the fact that the projection of the CFP does not incorporate the effects of measures “not sufficiently specified” by the Ministry (combats VAT fraud in the fuel sector and the remaining revenue from real estate disposal) and the impact on the liquidation of IRS resulting from the extraordinary reduction of retentions at the source of November 2026, and if these were included, “the projection of the CFP would result in a surplus close to the value of POE/2027”.

Still, the body warns about the composition of the balance, and the aggregate surplus of general government “combines a central government deficit of 2.8% of GDP – the largest since 2017, excluding the pandemic years – with surpluses of 2.6% of GDP in the Social Security Funds and 0.2% in the Regional and Local Administration”.

“The dependence of the overall result on the behaviour of the social security sub-sector, which is particularly exposed to the economic cycle, persists,” warns the CFP.

In this scenario, the institution calls for more efficient management of resources in the different sectors of the State, particularly in the Central Administration, “enhancing the scope for budgetary manoeuvre to address the new public investment needs in different areas, with a view to preserving fundamental social balances” in the country.

In the report, the CFP also points to the difficulty of assessing some forecasts and estimates of the document due to the fact that there is little information or clarification, for example in defence expenditure and the impact on national real estate accounts.

The OE2027 proposal will be discussed and voted on in general between 27 and 28 October. The overall final vote is scheduled for November 24, after the discussion process in the specialty.