Portugal: Fiscal deficit surprises to the downside in Q1 amidst new austerity measures
June 29, 2011
On 29 June, the national statistics institute (INE, Instituto Nacional de Estatistica) announced that the fiscal deficit reached 8.7% of GDP in the first quarter. The fiscal gap was below the 9.3% of GDP deficit incurred in the fourth quarter but was much larger than the 5.9% of GDP deficit planned for the entire year, indicating that the government will have to adopt new austerity measures to meet the conditions of the EUR 78 billion (USD 112 billion) bail-out package agreed with the European Union (EU) and International Monetary Fund (IMF) The new government, led by Pedro Passos Coelho from the centre-right Social Democratic Party (PSD, Partido Social Democrata), has already pledged its commitment to fulfil all the EU-IMF requirements. In his first speech to parliament after the election, Pedro Passos stated that his administration plans to implement a new one-off income levy. The one-time tax will be equivalent to 50% of the Christmas bonus (the 13th salary) and the government expects to raise around EUR 800 million with this measure. In addition, Passos announced that several structural measures, including the restructuring of state-owned companies, will be initiated in the current quarter, earlier than initially planned. According to the bailout program, Portugal has committed to cutting the fiscal deficit to 5.9% of GDP by the end of this year, 4.5% in 2012 and 3.0% in 2013.