Finance Minister Teixeira dos Santos has already warned
that the proposal is heavily centred on rigour and
consolidation, as the government looks to bring the
budget deficit down beneath the three percent threshold
for the first time in years. Included in the draft
proposal, are higher taxes on alcohol and tobacco, but
Mr dos Santos, reacting to accusations from the
opposition said taxes on fuel will not be hiked, as had
initially been predicted, during the course of 2008.
While austerity measures imposed in recent budgets have
resulted in the Socialist government's popularity
plummeting, especially among low income earners, it has
now emerged that the budget deficit might be within EU
limitations 12 months before anticipated, underlying
Lisbon's successes in moves to contain spending and
reduce debt.
After peaking at a staggering 6.9 percent in 2004,
measures imposed by the government since coming to power
at the beginning of 2005 are set to see the budget
deficit fall beneath the euro-zone limit of three
percent for the first time in five years.
Increases in value added tax in the top rate to 21
percent, imposing a one-time income tax rate of 42
percent on high income earners and taxes on fuel,
tobacco and alcohol in budgets since 2005 appear to have
finally resulted in some form of financial stability.
But the government warned this week that in order to
achieve its ambition of narrowing the predicted budget
shortfall to 2.4 percent of gross domestic product for
2008, certain sacrifices will still be required.
However, sources have meanwhile indicated that
Portugal is in a position where it might fall in line
with EU financial regulations once it closes its
accounts for 2008.
This year's budget foresees a budget deficit of 3.3
percent, but reported exceptional successes in the
recovery of outstanding fiscal debts has seen talk grow
in the corridors of the Finance Ministry that it might
announce a minor miracle at the end of the year that the
deficit has fallen to 3.0 percent.
In the meantime, and following the Ministry's
announcement that it would not be increasing taxes on
fuel at the pumps, which is contrary to the guidelines
set out earlier by the government to reduce the deficit,
concerns are that Prime Minister José Sócrates will now
seek to obtain revenue from other sources.
By not increasing the cost of fuel by 2.5 cents a
litre as had been stipulated back in 2006, the state's
coffers are anticipated to be deprived of around 275
million euros in fiscal revenue in the coming year.
Nonetheless, Lisbon remains buoyant as to the state
of the nation's finances and is forecasting Gross
Domestic Product growth of 2.3 percent, which, while
slightly lower than its earlier prediction of 2.4
percent, remains optimistic.
Public spending, a customary victim of austerity
measures in previous budgets, is expected to be boosted
by six to seven percent.
Separately, the government says it will encourage
economic growth via the 2008 budget by announcing
incentives for small and medium enterprises, mainly
through the application of tax benefits and rebates.
The budget will also seek to persuade companies to
set up in the interior of the country, by offering them
greater fiscal incentives.
Meanwhile, Minister for the Presidency, Alberto
Martins, reinforced the position of his counterpart at
the Finance Ministry by saying: "This will be a rigorous
budget and will focus on reducing public debt and
attaining fiscal stability".
Mr Martins added that while the budget will seek to
boost economic growth, it will also focus on improving
the lifestyles of citizens through investments in
crucial areas such as health, education, labour and
social welfare, and justice.
While all opposition parties have so far been
critical of areas they predict will be neglected by the
government during the coming year, the passing of the
budget proposal is secured as the ruling Socialists hold
a majority in parliament.
The document will be debated in parliament in coming
weeks, and the government has in the past shown a
willingness to make alterations to the budget based on
proposals put forward by the opposition.
But the biggest headache for the government is not
expected to come from opposition parties, but rather
trade unions.
Next Tuesday, the Finance Minister will be sitting
down with union bosses to update workers' salaries.
For 2008, increases were kept to a maximum of 1.5
percent, but the three major unions have already
presented proposals varying from a minimum rise of 3.8
percent to a maximum of 5.8 percent. The Communist
Party, who are highly influential at union level, have
also called for the minimum wage to be upped to €430 per
month.