Economic Policies
#22Key Findings
Showing very significant gains in recent years, Portugal falls into the middle ranks internationally (rank 22) with respect to economic policies. Its score on this measure has improved by 1.9 points relative to its 2014 level.
The pandemic highlighted the country’s dependence on foreign tourism. As travel dried up, GDP contracted by 8.4% in 2020. However, the economy bounced back to robust levels of growth in 2021 as COVID-19 restrictions were lifted. More generally, the government continued to reverse past austerity measures without undermining budgetary policy or fiscal consolidation.
The unemployment rate rose from about 7% in the pre-pandemic period to about 8% in late 2020, but had again fallen below its initial levels by mid-2021. Continued high levels of emigration were a factor in these gains. The monthly minimum wage was increased.
The overall tax burden remains below the EU-27 average. The budget deficit reached 5.8% of GDP in 2020, with total debt rising to 135.2% of GDP. Both figures are again on the decline. Funds from the EU’s Recovery and Resilience Plan will be used for investments intended to improve innovation capacity and growth potential.
The pandemic highlighted the country’s dependence on foreign tourism. As travel dried up, GDP contracted by 8.4% in 2020. However, the economy bounced back to robust levels of growth in 2021 as COVID-19 restrictions were lifted. More generally, the government continued to reverse past austerity measures without undermining budgetary policy or fiscal consolidation.
The unemployment rate rose from about 7% in the pre-pandemic period to about 8% in late 2020, but had again fallen below its initial levels by mid-2021. Continued high levels of emigration were a factor in these gains. The monthly minimum wage was increased.
The overall tax burden remains below the EU-27 average. The budget deficit reached 5.8% of GDP in 2020, with total debt rising to 135.2% of GDP. Both figures are again on the decline. Funds from the EU’s Recovery and Resilience Plan will be used for investments intended to improve innovation capacity and growth potential.
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How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?
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9
9
Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
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6
Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
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3
4
3
Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
2
1
1
Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
In a country marked by considerable policy discontinuities across governments, the recent governmental stability, with António Costa serving as prime minister of a minority Socialist-led government since November 2015 and throughout the period here under analysis, helped foster and maintain a reasonably reliable economic environment.
The government continued its strategy of gradually reversing previous austerity measures without generating adverse impacts on budgetary policy or the country’s overall fiscal consolidation. It has also sought to facilitate investment through the Simplex+ program, which aims to simplify bureaucratic processes.
The economy grew in 2019. Following three years of economic downturn (2011 – 2013) during the bailout, 2019 marked the sixth consecutive year of economic growth. Moreover its growth rate of 2.7% in 2019 exceeded both that of the euro zone (1.6%) and the EU-27 as a whole (1.8%) for the third consecutive year.
However, the pandemic highlighted some hitherto unforeseen vulnerabilities of the Portuguese economy, notably its dependence on foreign tourism. For example, the country’s hospitality sector was particularly affected. Eurostat’s provisional data points to a GDP contraction of 8.4% in 2020: well above the EU-27 (-5.9%) and euro zone (-6.4%) averages, and exceeded only by Spain and Greece in the EU.
The economy bounced back well in 2021, especially as COVID-19-related restrictions were lifted. Eurostat’s provisional quarterly GDP data points to a growth rate of 4.4% in Q2 and 2.9% in Q3 of 2021. Not only are both of these above the euro zone and EU-27 averages, the former is the second highest among the EU-27, and the latter is the third highest. This bounce-back was sustained, inter alia, by a very successful vaccination program, the reopening of international travel and the first flows of funds from the EU’s Recovery and Resilience Plan (RPP).
The latter will be particularly important moving forward. As previous SGI reports have noted, the Portuguese economy faces a number of structural constraints that had hitherto remained largely unaddressed. A recent Bank of Portugal study on potential output (i.e., the highest total GDP that an economy could sustainably produce) found that Portugal’s potential output has been decelerating since the 2000s and diverging from the euro area since 2003. The study concluded that “(t)he results reinforce the case for structural reforms if policymakers desire to resume a sustainable economic convergence.” A central plank of the government’s strategy for the RPP is to foster innovation and the digital transition, for instance by financing projects involving companies and research centers that seek to generate high-level innovation. While the goals of the RPP are very positive, the one open question is whether the economy has the ability to adequately absorb such a high level of investment in such a short time.
Citations:
Duarte, Cláudia; Maria, José R.; & Sazedj, Sharmin (2019), “Potential output in Portugal and in the euro area: Where do we stand?,” in Bank of Portugal – Economics and Research Department (ed.), Portuguese economic growth: A view on structural features, blockages and reforms, available online at: https://www.bportugal.pt/sites/default/files/anexos/pdf-boletim/cep_en.pdf
Eurostat, “Gross domestic product, volumes” available online at: https://ec.europa.eu/eurostat/databrowser/view/teina011/default/table?lang=en
Eurostat, “Real GDP growth rate – volume: Percentage change on previous year” available online at: https://ec.europa.eu/eurostat/databrowser/view/tec00115/default/table?lang=en
Governo de Portugal (2021), “Recuperar Portugal, Construindo o Futuro – Plano de Recuperação e Resiliência,” available online at: https://recuperarportugal.gov.pt/wp-content/uploads/2021/10/PRR.pdf
The government continued its strategy of gradually reversing previous austerity measures without generating adverse impacts on budgetary policy or the country’s overall fiscal consolidation. It has also sought to facilitate investment through the Simplex+ program, which aims to simplify bureaucratic processes.
The economy grew in 2019. Following three years of economic downturn (2011 – 2013) during the bailout, 2019 marked the sixth consecutive year of economic growth. Moreover its growth rate of 2.7% in 2019 exceeded both that of the euro zone (1.6%) and the EU-27 as a whole (1.8%) for the third consecutive year.
However, the pandemic highlighted some hitherto unforeseen vulnerabilities of the Portuguese economy, notably its dependence on foreign tourism. For example, the country’s hospitality sector was particularly affected. Eurostat’s provisional data points to a GDP contraction of 8.4% in 2020: well above the EU-27 (-5.9%) and euro zone (-6.4%) averages, and exceeded only by Spain and Greece in the EU.
The economy bounced back well in 2021, especially as COVID-19-related restrictions were lifted. Eurostat’s provisional quarterly GDP data points to a growth rate of 4.4% in Q2 and 2.9% in Q3 of 2021. Not only are both of these above the euro zone and EU-27 averages, the former is the second highest among the EU-27, and the latter is the third highest. This bounce-back was sustained, inter alia, by a very successful vaccination program, the reopening of international travel and the first flows of funds from the EU’s Recovery and Resilience Plan (RPP).
The latter will be particularly important moving forward. As previous SGI reports have noted, the Portuguese economy faces a number of structural constraints that had hitherto remained largely unaddressed. A recent Bank of Portugal study on potential output (i.e., the highest total GDP that an economy could sustainably produce) found that Portugal’s potential output has been decelerating since the 2000s and diverging from the euro area since 2003. The study concluded that “(t)he results reinforce the case for structural reforms if policymakers desire to resume a sustainable economic convergence.” A central plank of the government’s strategy for the RPP is to foster innovation and the digital transition, for instance by financing projects involving companies and research centers that seek to generate high-level innovation. While the goals of the RPP are very positive, the one open question is whether the economy has the ability to adequately absorb such a high level of investment in such a short time.
Citations:
Duarte, Cláudia; Maria, José R.; & Sazedj, Sharmin (2019), “Potential output in Portugal and in the euro area: Where do we stand?,” in Bank of Portugal – Economics and Research Department (ed.), Portuguese economic growth: A view on structural features, blockages and reforms, available online at: https://www.bportugal.pt/sites/default/files/anexos/pdf-boletim/cep_en.pdf
Eurostat, “Gross domestic product, volumes” available online at: https://ec.europa.eu/eurostat/databrowser/view/teina011/default/table?lang=en
Eurostat, “Real GDP growth rate – volume: Percentage change on previous year” available online at: https://ec.europa.eu/eurostat/databrowser/view/tec00115/default/table?lang=en
Governo de Portugal (2021), “Recuperar Portugal, Construindo o Futuro – Plano de Recuperação e Resiliência,” available online at: https://recuperarportugal.gov.pt/wp-content/uploads/2021/10/PRR.pdf
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How effectively does labor market policy address unemployment?
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Successful strategies ensure unemployment is not a serious threat.
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Labor market policies have been more or less successful.
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Strategies against unemployment have shown little or no significant success.
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Labor market policies have been unsuccessful and rather effected a rise in unemployment.
The country’s unemployment rate was low and stable in the pre-pandemic period, at around 7%, a far cry from the peak of 17.9% in January 2013. The pandemic did temporarily increase the unemployment rate to 8% in August and September 2020, but unemployment in the last six months for which there was data at the time of writing was even more restrained than in the pre-pandemic period, with a rate ranging between 6.2% and 7%.
The small increase in unemployment was largely due to the introduction of job-protection schemes, such as simplified layoff provisions, across all sectors (Neutel 2020).
However, the low level of unemployment in 2021 is not entirely due to labor market policies. The available evidence suggests that two factors have contributed. The first is the return to real economic growth. The second is the continued effect of very high levels of emigration. The data for 2019 indicates that some 77,040 people emigrated (on either a permanent or temporary basis) in 2019, a marginally lower level than that of 2018 (81,754). Moreover, despite the restrictions on travel in 2020, another 68,209 people. Emigration rates thus remain high and seemingly stable, the pandemic notwithstanding, with an impact on the level of unemployment.
As in the previous SGI period, youth unemployment remains a blot on the country’s labor market record. Like overall unemployment, youth unemployment was fairly stable in the pre-pandemic period, albeit at a much higher rate, averaging 19.8% in the period of November 2019 to February 2020. However, youth were far more exposed to the effects of the pandemic, with the youth unemployment rate never falling below 20% after June 2020.
The monthly minimum wage was increased from €600 per month in 2019 to €635 in 2020 and €665 in 2021 and €705 in 2022. This marks an increase of more than €200 from the four-year plateau of €485 during the bailout period (2011 – 2014). However, one of the issues that led the Communist Party to reject the 2022 budget was its support for an increase in the minimum wage to €800 in 2022.
The rejection of the budget and the subsequent dissolution of parliament meant that a number of government proposals, particularly those under its Dignified Work Agenda, were not submitted to parliament.
Citations:
Eurostat, “Harmonised unemployment rates (%) – monthly data,” available online at: https://ec.europa.eu/eurostat/databrowser/view/ei_lmhr_m/default/table?lang=en
Eurostat, “Unemployment rate by sex and age – monthly average,” available online at: https://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do
Neutel, H. (2020). “Lay-off custa 563 milhões por mês. É a maior fatia da despesa de combate à Covid-19,” TSF, 8 May 2020, available online at: https://www.tsf.pt/portugal/economia/lay-off-custa-563-milhoes-por-mes-e-a-maior-fatia-da-despesa-de-combate-a-covid-12168551.html
Pordata, “Emigrantes: total e por tipo – Portugal,” available online at: https://www.pordata.pt/Portugal/Emigrantes+total+e+por+tipo-21
Pordata, “Salário mínimo nacional,” available online at: https://www.pordata.pt/Portugal/Salário+m%C3%ADnimo+nacional-74
Vania Duarte, The Portuguese labour market in times of the pandemic
https://www.caixabankresearch.com/en/economics-markets/labour-market-demographics/portuguese-labour-market-times-pandemic
The small increase in unemployment was largely due to the introduction of job-protection schemes, such as simplified layoff provisions, across all sectors (Neutel 2020).
However, the low level of unemployment in 2021 is not entirely due to labor market policies. The available evidence suggests that two factors have contributed. The first is the return to real economic growth. The second is the continued effect of very high levels of emigration. The data for 2019 indicates that some 77,040 people emigrated (on either a permanent or temporary basis) in 2019, a marginally lower level than that of 2018 (81,754). Moreover, despite the restrictions on travel in 2020, another 68,209 people. Emigration rates thus remain high and seemingly stable, the pandemic notwithstanding, with an impact on the level of unemployment.
As in the previous SGI period, youth unemployment remains a blot on the country’s labor market record. Like overall unemployment, youth unemployment was fairly stable in the pre-pandemic period, albeit at a much higher rate, averaging 19.8% in the period of November 2019 to February 2020. However, youth were far more exposed to the effects of the pandemic, with the youth unemployment rate never falling below 20% after June 2020.
The monthly minimum wage was increased from €600 per month in 2019 to €635 in 2020 and €665 in 2021 and €705 in 2022. This marks an increase of more than €200 from the four-year plateau of €485 during the bailout period (2011 – 2014). However, one of the issues that led the Communist Party to reject the 2022 budget was its support for an increase in the minimum wage to €800 in 2022.
The rejection of the budget and the subsequent dissolution of parliament meant that a number of government proposals, particularly those under its Dignified Work Agenda, were not submitted to parliament.
Citations:
Eurostat, “Harmonised unemployment rates (%) – monthly data,” available online at: https://ec.europa.eu/eurostat/databrowser/view/ei_lmhr_m/default/table?lang=en
Eurostat, “Unemployment rate by sex and age – monthly average,” available online at: https://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do
Neutel, H. (2020). “Lay-off custa 563 milhões por mês. É a maior fatia da despesa de combate à Covid-19,” TSF, 8 May 2020, available online at: https://www.tsf.pt/portugal/economia/lay-off-custa-563-milhoes-por-mes-e-a-maior-fatia-da-despesa-de-combate-a-covid-12168551.html
Pordata, “Emigrantes: total e por tipo – Portugal,” available online at: https://www.pordata.pt/Portugal/Emigrantes+total+e+por+tipo-21
Pordata, “Salário mínimo nacional,” available online at: https://www.pordata.pt/Portugal/Salário+m%C3%ADnimo+nacional-74
Vania Duarte, The Portuguese labour market in times of the pandemic
https://www.caixabankresearch.com/en/economics-markets/labour-market-demographics/portuguese-labour-market-times-pandemic
Graph View
How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?
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Taxation policy fully achieves the objectives.
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Taxation policy largely achieves the objectives.
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Taxation policy partially achieves the objectives.
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Taxation policy does not achieve the objectives at all.
The levels of taxation on income and consumption noted in recent SGI reports remained high during the period under review.
After a drop of 0.3 percentage points in 2019, the tax burden increased by 0.9 percentage points in 2020, to 37.6%, a new high. This was the second-highest increase in tax-to-GDP ratio across the EU, after Spain. However, it remains below the EU-28 average, albeit above the OECD average.
This historically high level is a result of three factors.
First, while the Costa government has stated its intention to end austerity, it has largely retained the income tax brackets approved in 2013, which generated a massive tax increase (and which boosted the tax burden from 31.8% of GDP in 2012, below the OECD average, to 34.1% of GDP in 2013, above the OECD average). Prior to this change in income tax, the tax burden had only once surpassed 32% (32.3% in 2011). Since 2013, it has never fallen below 34% of GDP. The government’s 2022 budget proposal sought to reduce income tax levels, but – as noted above – this budget was not approved in parliament.
Second, the Costa government has sought to maintain budgetary consolidation despite increasing expenditure. To that end, it has resorted to indirect taxation, either maintaining existing high levels on some indirect taxes (e.g., VAT) or increasing the rate on other indirect taxes.
Third, in terms of the tax-to-GDP ratio, these generally high levels of taxation were compounded by the pandemic-driven fall in GDP, which lowered nominal GDP.
Overall, tax policy has failed to achieve horizontal and vertical equity during the period under review.
Fiscal receipts continue to rely excessively on more regressive indirect taxation. While Portugal’s overall tax-to-GDP level in 2020 was below the EU-27 average, the country’s VAT-to-GDP ratio was 13.1%, well above the EU average of 10.9%.
Moreover, the overall balance is one in which indirect taxation outweighs taxes on income, in contrast to the EU norm. The considerable dependence of public finances on indirect taxation measures fails to satisfy the vertical-equity criterion.
In 2018, the tax authority initiated a new strategic plan to combat fraud and tax evasion for the 2018 – 2020 period. By 2020, it had implemented 58% of the 95 measures contained in the strategic plan. Noting that execution had been affected by the pandemic, it extended the implementation period by a further two years.
Existing data suggests historically high levels of tax evasion and fraud in Portugal. A paper published in 2018 indicated that over 20% of Portugal’s GDP was held offshore in 2007 – more than twice the world average of 9.8% and second only to Greece in the European Union. While its various measures are a step in the right direction, the tax authority appears unable to fully deal with the accumulation of offshored wealth or sophisticated modes of tax evasion.
At the corporate level, it should be noted that taxes on the income or profit of corporations (including taxes on holding gains) is higher in Portugal as a percentage of GDP (2.8% in 2020) than the EU-28 average (2.4%).
Portugal has a higher ratio of environmental tax revenue to GDP than does the EU-27 as a whole. However, the bulk of this tax revenue derives from taxes on gasoline, which account for some 69.2% of total environmental tax revenue. It falls well below the EU average in terms of taxation income on pollution and resources.
Citations:
Alstadsæter, A., Johannesen, N., & Zucman, G. (2018). Who owns the wealth in tax havens? Macro evidence and implications for global inequality. Journal of Public Economics, Volume 162, June 2018, Pages 89-100.
Eurostat (2021), “Tax revenue statistics,” available online at: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Tax_revenue_statistics#Taxes_and_social_contributions_by_subsector
Eurostat (2021), “Environmental tax statistics,” available online at: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Environmental_tax_statistics#Environmental_taxes_in_the_EU
Milheiro, J. (2021), “Receitas dos impostos verdes caem 12%,” TSF, available online at: https://www.tsf.pt/portugal/economia/receitas-dos-impostos-verdes-caiem-12-14199437.html
OECD (2022), Tax revenue (indicator). doi: 10.1787/d98b8cf5-en (Accessed on 09 January 2022)
Portuguese Republic (2020), “Relatório De Atividades Desenvolvidas de ‘Combate à Fraude e Evasão Fiscais Aduaneiras 2020’,” available online at: https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3d%3dBQAAAB%2bLCAAAAAAABAAzNLQ0NwEAcXP9iAUAAAA%3d
After a drop of 0.3 percentage points in 2019, the tax burden increased by 0.9 percentage points in 2020, to 37.6%, a new high. This was the second-highest increase in tax-to-GDP ratio across the EU, after Spain. However, it remains below the EU-28 average, albeit above the OECD average.
This historically high level is a result of three factors.
First, while the Costa government has stated its intention to end austerity, it has largely retained the income tax brackets approved in 2013, which generated a massive tax increase (and which boosted the tax burden from 31.8% of GDP in 2012, below the OECD average, to 34.1% of GDP in 2013, above the OECD average). Prior to this change in income tax, the tax burden had only once surpassed 32% (32.3% in 2011). Since 2013, it has never fallen below 34% of GDP. The government’s 2022 budget proposal sought to reduce income tax levels, but – as noted above – this budget was not approved in parliament.
Second, the Costa government has sought to maintain budgetary consolidation despite increasing expenditure. To that end, it has resorted to indirect taxation, either maintaining existing high levels on some indirect taxes (e.g., VAT) or increasing the rate on other indirect taxes.
Third, in terms of the tax-to-GDP ratio, these generally high levels of taxation were compounded by the pandemic-driven fall in GDP, which lowered nominal GDP.
Overall, tax policy has failed to achieve horizontal and vertical equity during the period under review.
Fiscal receipts continue to rely excessively on more regressive indirect taxation. While Portugal’s overall tax-to-GDP level in 2020 was below the EU-27 average, the country’s VAT-to-GDP ratio was 13.1%, well above the EU average of 10.9%.
Moreover, the overall balance is one in which indirect taxation outweighs taxes on income, in contrast to the EU norm. The considerable dependence of public finances on indirect taxation measures fails to satisfy the vertical-equity criterion.
In 2018, the tax authority initiated a new strategic plan to combat fraud and tax evasion for the 2018 – 2020 period. By 2020, it had implemented 58% of the 95 measures contained in the strategic plan. Noting that execution had been affected by the pandemic, it extended the implementation period by a further two years.
Existing data suggests historically high levels of tax evasion and fraud in Portugal. A paper published in 2018 indicated that over 20% of Portugal’s GDP was held offshore in 2007 – more than twice the world average of 9.8% and second only to Greece in the European Union. While its various measures are a step in the right direction, the tax authority appears unable to fully deal with the accumulation of offshored wealth or sophisticated modes of tax evasion.
At the corporate level, it should be noted that taxes on the income or profit of corporations (including taxes on holding gains) is higher in Portugal as a percentage of GDP (2.8% in 2020) than the EU-28 average (2.4%).
Portugal has a higher ratio of environmental tax revenue to GDP than does the EU-27 as a whole. However, the bulk of this tax revenue derives from taxes on gasoline, which account for some 69.2% of total environmental tax revenue. It falls well below the EU average in terms of taxation income on pollution and resources.
Citations:
Alstadsæter, A., Johannesen, N., & Zucman, G. (2018). Who owns the wealth in tax havens? Macro evidence and implications for global inequality. Journal of Public Economics, Volume 162, June 2018, Pages 89-100.
Eurostat (2021), “Tax revenue statistics,” available online at: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Tax_revenue_statistics#Taxes_and_social_contributions_by_subsector
Eurostat (2021), “Environmental tax statistics,” available online at: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Environmental_tax_statistics#Environmental_taxes_in_the_EU
Milheiro, J. (2021), “Receitas dos impostos verdes caem 12%,” TSF, available online at: https://www.tsf.pt/portugal/economia/receitas-dos-impostos-verdes-caiem-12-14199437.html
OECD (2022), Tax revenue (indicator). doi: 10.1787/d98b8cf5-en (Accessed on 09 January 2022)
Portuguese Republic (2020), “Relatório De Atividades Desenvolvidas de ‘Combate à Fraude e Evasão Fiscais Aduaneiras 2020’,” available online at: https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3d%3dBQAAAB%2bLCAAAAAAABAAzNLQ0NwEAcXP9iAUAAAA%3d
Graph View
To what extent does budgetary policy realize the goal of fiscal sustainability?
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Budgetary policy is fiscally sustainable.
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Budgetary policy achieves most standards of fiscal sustainability.
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Budgetary policy achieves some standards of fiscal sustainability.
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Budgetary policy is fiscally unsustainable.
In 2019, Portugal posted a budget surplus of 0.1% of GDP. This was the first such surplus since democratization in 1974, and only the second time this had occurred since 1964.
In June 2020, Finance Minister Mário Centeno left the government to become governor of the Bank of Portugal. However, the loss of Centeno, dubbed the “Cristiano Ronaldo of the Ecofin” in May 2017 by then-German Finance Minister Wolfgang Schäuble, did not lead to a significant change in budgetary policy.
While the new minister, João Leão – previously a junior minister under Centeno – maintained the goal of ensuring balanced budgets, the pandemic inevitably generated a significant deficit in 2020, totaling 5.8% of GDP. However, that was lower than the EU-27 (6.9%) or euro zone (7.2%) deficits for 2020. The pandemic also reversed the downward trajectory in terms of debt, which had fallen from 131.5% of GDP in 2016 to 116.6% of GDP in 2019. In 2020, it rose back to 135.2% of GDP, an increase that reflected not only the higher levels of public expenditure during the pandemic, but also the reduction in nominal GDP. Speaking in late December 2021, the finance minister stated that the goal of a 4.3% deficit in 2021 would be achieved, as would a reduction of debt to 127% of GDP.
Portugal’s international credibility continues to be strengthened, with Portugal’s rating having been upgraded by Moody’s to Baa2 in September 2021.
It should be noted that these positive results have been achieved in part through low levels of government investment, the lowest in the EU in both 2019 and 2020; and through several so-called cativações within the budget, which refer to funds that have been allocated but cannot be spent. These inevitably impinge on the ability to deliver public services.
Citations:
Eurostat, “General government gross debt – annual data,” available online at: https://ec.europa.eu/eurostat/databrowser/view/teina225/default/table?lang=en
Eurostat, “Investment share of GDP by institutional sectors,” available online at: https://ec.europa.eu/eurostat/databrowser/view/sdg_08_11/default/table
Eurostat, “Government deficit/surplus, debt and associated data,” available online at: https://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=gov_10dd_edpt1&lang=en
Governo de Portugal (2021), “Portugal vai cumprir as metas orçamentais de 2021,,” available online at: https://www.portugal.gov.pt/pt/gc22/comunicacao/noticia?i=portugal-vai-cumprir-as-metas-orcamentais-de-2021
Pordata, “Estado: despesas efectivas, receitas efectivas e défice/excedente em % do PIB,” available online at: https://www.pordata.pt/Portugal/Estado+despesas+efectivas++receitas+efectivas+e+défice+excedente+em+percentagem+do+PIB-2767
Post-Programme Surveillance Report - Portugal, Spring 2021
https://ec.europa.eu › economy-finance › ip152_en
PDF
In June 2020, Finance Minister Mário Centeno left the government to become governor of the Bank of Portugal. However, the loss of Centeno, dubbed the “Cristiano Ronaldo of the Ecofin” in May 2017 by then-German Finance Minister Wolfgang Schäuble, did not lead to a significant change in budgetary policy.
While the new minister, João Leão – previously a junior minister under Centeno – maintained the goal of ensuring balanced budgets, the pandemic inevitably generated a significant deficit in 2020, totaling 5.8% of GDP. However, that was lower than the EU-27 (6.9%) or euro zone (7.2%) deficits for 2020. The pandemic also reversed the downward trajectory in terms of debt, which had fallen from 131.5% of GDP in 2016 to 116.6% of GDP in 2019. In 2020, it rose back to 135.2% of GDP, an increase that reflected not only the higher levels of public expenditure during the pandemic, but also the reduction in nominal GDP. Speaking in late December 2021, the finance minister stated that the goal of a 4.3% deficit in 2021 would be achieved, as would a reduction of debt to 127% of GDP.
Portugal’s international credibility continues to be strengthened, with Portugal’s rating having been upgraded by Moody’s to Baa2 in September 2021.
It should be noted that these positive results have been achieved in part through low levels of government investment, the lowest in the EU in both 2019 and 2020; and through several so-called cativações within the budget, which refer to funds that have been allocated but cannot be spent. These inevitably impinge on the ability to deliver public services.
Citations:
Eurostat, “General government gross debt – annual data,” available online at: https://ec.europa.eu/eurostat/databrowser/view/teina225/default/table?lang=en
Eurostat, “Investment share of GDP by institutional sectors,” available online at: https://ec.europa.eu/eurostat/databrowser/view/sdg_08_11/default/table
Eurostat, “Government deficit/surplus, debt and associated data,” available online at: https://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=gov_10dd_edpt1&lang=en
Governo de Portugal (2021), “Portugal vai cumprir as metas orçamentais de 2021,,” available online at: https://www.portugal.gov.pt/pt/gc22/comunicacao/noticia?i=portugal-vai-cumprir-as-metas-orcamentais-de-2021
Pordata, “Estado: despesas efectivas, receitas efectivas e défice/excedente em % do PIB,” available online at: https://www.pordata.pt/Portugal/Estado+despesas+efectivas++receitas+efectivas+e+défice+excedente+em+percentagem+do+PIB-2767
Post-Programme Surveillance Report - Portugal, Spring 2021
https://ec.europa.eu › economy-finance › ip152_en
Graph View
To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?
10
9
9
Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
8
7
6
7
6
Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
5
4
3
4
3
Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
2
1
1
Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
The European Union’s 2020 Innovation Scoreboard classified Portugal as a “strong innovator,” the second-highest category (out of four) and an improvement vis-à-vis the 2019 Innovation Scoreboard, in which Portugal was deemed a “moderate innovator.”
However, there was a significant deterioration in the 2021 Innovation Scoreboard, with Portugal being downgraded to a “moderate innovator,” dropping from 12th to 19th place in the EU. Nevertheless, this reduction may be due to data collection issues, with the 2021 Innovation Scoreboard noting that the country’s “recent decline in innovation performance is due to reduced performance on the indicators using innovation survey data, hiding strong performance increases on tertiary education, government support for business R&D, ICT specialists, job-to-job mobility of human resources in science and technology (HRST) and environment-related technologies.”
The 2021 Innovation Scoreboard report noted that Portugal’s strengths include attractive research systems, digitalization and the use of information technologies. Conversely, its weaknesses are with regard to In-house business process innovators; Innovators that do not develop innovations themselves; and Climate change related indicators.
In previous SGI reports we noted that the government places a great deal of emphasis on research and innovation, with a particular interest in developing the tech sector, signing a €110 million deal to host the Web Summit in Lisbon until 2028. A reflection of this commitment is the Portuguese government’s leadership in setting up the European Startup Nations Alliance (ESNA) in November 2021, which will have its permanent seat in Lisbon. Moreover, innovation is a key plank of the country’s Recovery and Resilience Plan.
While this is beginning to have some impact, it should be noted that Portugal is developing from a very low position, a pattern that is reflected in the results that fall below the EU average in terms of the tech sector as highlighted in the State of European Tech 2021 report.
Citations:
Atomico & Slush (2021), “The State of European Tech 2018,” available online at: https://2021.stateofeuropeantech.com/chapter/executive-summary/
“European Innovation Scoreboard 2020 – Portugal.” Available online at: https://eurocid.mne.gov.pt/sites/default/files/repository/paragraph/documents/9961/000084557.pdf
“European Innovation Scoreboard 2021 – Portugal.” Available online at:
https://www.kowi.de/Portaldata/2/Resources/fp/EIS-2021-Report.pdf
“Portuguese Roadmap of Research Infrastructures. 2020 Update” at https://www.fct.pt/media/docs/Portuguese_Roadmap_Infrastructures2020.pdf
However, there was a significant deterioration in the 2021 Innovation Scoreboard, with Portugal being downgraded to a “moderate innovator,” dropping from 12th to 19th place in the EU. Nevertheless, this reduction may be due to data collection issues, with the 2021 Innovation Scoreboard noting that the country’s “recent decline in innovation performance is due to reduced performance on the indicators using innovation survey data, hiding strong performance increases on tertiary education, government support for business R&D, ICT specialists, job-to-job mobility of human resources in science and technology (HRST) and environment-related technologies.”
The 2021 Innovation Scoreboard report noted that Portugal’s strengths include attractive research systems, digitalization and the use of information technologies. Conversely, its weaknesses are with regard to In-house business process innovators; Innovators that do not develop innovations themselves; and Climate change related indicators.
In previous SGI reports we noted that the government places a great deal of emphasis on research and innovation, with a particular interest in developing the tech sector, signing a €110 million deal to host the Web Summit in Lisbon until 2028. A reflection of this commitment is the Portuguese government’s leadership in setting up the European Startup Nations Alliance (ESNA) in November 2021, which will have its permanent seat in Lisbon. Moreover, innovation is a key plank of the country’s Recovery and Resilience Plan.
While this is beginning to have some impact, it should be noted that Portugal is developing from a very low position, a pattern that is reflected in the results that fall below the EU average in terms of the tech sector as highlighted in the State of European Tech 2021 report.
Citations:
Atomico & Slush (2021), “The State of European Tech 2018,” available online at: https://2021.stateofeuropeantech.com/chapter/executive-summary/
“European Innovation Scoreboard 2020 – Portugal.” Available online at: https://eurocid.mne.gov.pt/sites/default/files/repository/paragraph/documents/9961/000084557.pdf
“European Innovation Scoreboard 2021 – Portugal.” Available online at:
https://www.kowi.de/Portaldata/2/Resources/fp/EIS-2021-Report.pdf
“Portuguese Roadmap of Research Infrastructures. 2020 Update” at https://www.fct.pt/media/docs/Portuguese_Roadmap_Infrastructures2020.pdf
Graph View
To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?
10
9
9
The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
8
7
6
7
6
The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
5
4
3
4
3
The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
2
1
1
The government does not contribute to improving the regulation and supervision of financial markets.
Portugal is a peripheral country, which limits its ability to contribute to the effective regulation and supervision of the international financial architecture. Moreover, the risk associated with the country’s high deficits and public debt has led successive governments since the new millennium to focus overwhelmingly on achieving fiscal sustainability and financial stability, most notably during the 2011-2014 bailout period.
Portuguese policymakers focus less on the global financial system per se than on its impact on Portugal.
This being said, however, in the post-bailout period, Portuguese governments have sought to play a bigger role in contributing to EU debates on regulation. Their role has been enhanced by Portugal’s status as a bailout “success story,” and further reinforced by the election of Minister of Finance Mário Centeno as president of the Eurogroup.
This greater role was evidenced during the Portuguese presidency of the Council of the European Union in 2021. During this period, it was able to push through a deal on corporate tax transparency that requires “multinationals and their subsidiaries with annual revenues of over €750 million, and which are active in more than one country, to publish and make accessible the amount of taxes they pay in each member state.” In its assessment of the Portuguese presidency, Politico considered that “Lisbon achieved what many in Brussels thought was impossible,” getting a proposal that had “been gathering dust in council and parliament shelves for years” approved. However, this experience also highlights how much Portugal’s impact depends on being given a greater institutional role, such as the presidency of the Council of the EU.
Citations:
Success story which enhances status as expert says in last sentence above is found in Liz Alderman, “Portugal Dared to Cast Aside Austerity. It’s Having a Major Revival,” New York Times “Business Day” July 23, 2018.
European Parliament (2021), “EU lawmakers strike milestone deal for corporate tax transparency,” available online at: https://www.europarl.europa.eu/news/pt/press-room/20210527IPR04913/eu-lawmakers-strike-milestone-deal-for-corporate-tax-transparency
Politico (2021), “The Portuguese presidency’s policy efforts, marked,,” available online at: https://www.politico.eu/article/the-portuguese-presidencys-policy-efforts-marked/
Portuguese policymakers focus less on the global financial system per se than on its impact on Portugal.
This being said, however, in the post-bailout period, Portuguese governments have sought to play a bigger role in contributing to EU debates on regulation. Their role has been enhanced by Portugal’s status as a bailout “success story,” and further reinforced by the election of Minister of Finance Mário Centeno as president of the Eurogroup.
This greater role was evidenced during the Portuguese presidency of the Council of the European Union in 2021. During this period, it was able to push through a deal on corporate tax transparency that requires “multinationals and their subsidiaries with annual revenues of over €750 million, and which are active in more than one country, to publish and make accessible the amount of taxes they pay in each member state.” In its assessment of the Portuguese presidency, Politico considered that “Lisbon achieved what many in Brussels thought was impossible,” getting a proposal that had “been gathering dust in council and parliament shelves for years” approved. However, this experience also highlights how much Portugal’s impact depends on being given a greater institutional role, such as the presidency of the Council of the EU.
Citations:
Success story which enhances status as expert says in last sentence above is found in Liz Alderman, “Portugal Dared to Cast Aside Austerity. It’s Having a Major Revival,” New York Times “Business Day” July 23, 2018.
European Parliament (2021), “EU lawmakers strike milestone deal for corporate tax transparency,” available online at: https://www.europarl.europa.eu/news/pt/press-room/20210527IPR04913/eu-lawmakers-strike-milestone-deal-for-corporate-tax-transparency
Politico (2021), “The Portuguese presidency’s policy efforts, marked,,” available online at: https://www.politico.eu/article/the-portuguese-presidencys-policy-efforts-marked/