Government Budget for 2019 – Conference Outline

On the 4th of December, the Economics Club held a Conference about the Governmental Budget for 2019 with Professors Inês Domingos, João Borges de Assunção, João César das Neves and Miguel Gouveia and Masters in Economics student Maria Silva as guests.

Being the coordinator of the forecasting lab of Católica Lisbon (NECEP), Professor João Borges de Assunção started by presenting the “big” numbers of the Budget reached by the NECEP and compared them with those presented by the Government. According to the latter, the deficit of 2019 will be 0,2% of GDP, which is expected to grow 2,3%, and public debt in percentage of GDP is expected to fall to 118,5%.

When analysing the Budget, we consider the main measures to be:

  • the unfreezing of the career progression for public sector workers until the end of the year of 2019

  • the decrease of IVA in tickets for live concerts (from 13% to 6%);

  • the offering of all school books in mandatory schooling;

  • the reduction of the public university’s tuition fees;

  • the expansion of discounts in public transportation for all the metropolitan area of Lisbon and Porto;

  • the increase of the price of plastic bags (from 0,10 to 0,12 euros);

When confronted with this, Professor Inês Domingos referred that in her perspective this Budget is not preparing the country for external risks such as the entrance of the emerging markets (like China), the risk of Brexit not happening and Theresa May leaving the office, which would probably imply a Labour Party Government and the risk of international trade slowing down quite rapidly due to protectionist policies. Moreover, she thinks that the Portuguese economy is not very sustainable due to its high public and private debt and also because of the high level of spending cuts, which prevents the independent institutions that regulate the economy from doing their job. Another problem she identifies, but not only on this Budget, is the low productivity issue that she believes to be partially explained by the lack of big companies (which the parties that support this government are hostile towards). She believes big companies tend to be more productive and therefore it should be the goal of any Government to help firms increase their size.

Professor João César das Neves referred productivity as well because it is falling while the economy is growing (in countercycle). Furthermore, he stated that although we are going to grow 2,3% in the next year, which is above the average of the EU, there are still 14 countries growing more than us, which may indicate that this rate is not enough to compete with other countries. Also, he believes this Budget is electioneering. In addition, some decisions do not only benefit the poor but also the rich which is a conflict to the left-wing parties that are in favour of the former and there is not enough investment to overcome depreciations of capital, resulting in negative net investment.

Likewise, Professor Miguel Gouveia also thinks that, given the negative net investment, it is amazing that the GDP is growing, although only now has GDP overcome the level of 2011 (before the crisis). Besides this, there are structural changes that should be done now and are not being done, one of them being the change of management of the public transportation companies (Carris and Metro de Lisboa), that do not work efficiently, and this Budget only prevents them from natural bankruptcy.

On the other hand, what concerns Professor João Borges de Assunção is the fact that the Government believes the best way to manage a country is to not let it collapse rather than creating the conditions to make it resilient against future risks. As an example, he thinks a good measure might be to make the Government justify every taken decision through a report. Also, he considers that the Portuguese people nowadays are more tolerant towards mistakes than a few years ago.

In Maria Silva’s perspective, the economy is at a peak, which means that once it starts slowing down, it may lead to unemployment and the increase of expenditures cycle. Additionally, she stated, like professor Inês Domingos, that the Budget may not be in tune with external conditions such as Brexit; the rising of populist parties in most European countries (France and Spain, for example), which may create divisions in the EU; the trade barriers now in line of fire; and the fact that Russia is a big oil exporter (if for some reason the relations with this country deteriorate, an international recession may arise).

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