PORTUGAL'S 2009 BUDGET TO MAINTAIN DISCIPLINE

UNCLAS SECTION 01 OF 02 LISBON 002659 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN ECON PGOV PO SUBJECT: PORTUGAL'S 2009 BUDGET TO MAINTAIN DISCIPLINE ¶1. (SBU) Summary. The Portuguese Government's 2009 budget request maintains the record low budget deficit that was achieved last year (2.2% of GDP). There are no major policy or spending shifts in the budget request and, for that reason, there was little significant criticism from opposition parties or the media. The largest salary increase for public workers in the last decade is the only nod to populism in the face of upcoming elections. As the government has a majority in parliament, the budget should pass without major revision. End summary. ¶2. (U) The Government of Portugal (GOP) presented its 2009 budget to the parliament October 15, claiming the budget to be an example of "realism, prudence, and rigor." Portugal's fiscal year matches the calendar year. Although budget drafting is a continuous process dating back to the presentation of the previous iteration, the GOP said helping Portuguese families respond to the current financial crisis was the chief orienting principle. That said, there were no grand surprises as resource shifts were relatively small. ¶3. (U) Even though GOP budgets traditionally allocate around 60% to social functions (health, education, and social security),the GOP nonetheless stressed that the 60.3% allocated in the 2009 budget demonstrated a commitment to "Portuguese families." In addition to the largest salary increase for public workers in the last decade (2.9%),the GOP provided tax breaks on the sale of residences and the reinvestment of gains into subsequent residences. Such actions were offset in part by increased taxes on personal vehicles, petroleum products, and vehicle circulation fees (although tax incentives are available for electric vehicles) and a public sector that did not replace 12,000 departed employees. ¶4. (U) While cynics call it an "everybody wins" budget focused on garnering support in advance of the fall 2009 elections, the 2009 budget maintains the budget discipline achieved in the previous year. The 2008 budget deficit equaled 2.2% of GDP, the lowest deficit in the last 30 years. The 2009 budget proposal increases expenditure by 2.3 billion euros, but this is matched by increased revenue to maintain a deficit of 2.2% of GDP. ¶5. (U) The big winners in this year's budget are the ministries of Education and Public Works, while the losers are the ministries of Culture and Agriculture. Portugal's largest line item is for the Ministry of Health, but its 2.4% increase falls slightly short of the 2.5% inflation rate predicted for 2009. One could also consider the Ministry of Justice a big winner with a 60% budget increase, but virtually all of that is for the purchase and rehabilitation of new office space in Lisbon and elsewhere. The Ministry of Justice's real operating expenses increased only 4.5%, despite several new large-scale initiatives to counter money laundering, narcotics, and corruption. Foreign Relations -------------- ¶6. (U) Budget of 354 million euros; down 1.2% from 2008. Although the Ministry of Foreign Affairs (MFA) officially suffered a budget cut, this is only because the 2008 budget included leftover expenditures related to Portugal's 2007 presidency of the European Union. Although less demanding than an EU presidency, in 2009 Portugal continues to chair of the Community of Democracies (CD) and will assume the presidency of the Ibero-American Conference. For each of these roles, Portugal will host one summit and one ministerial during 2009. ¶7. (U) In operating terms, the MFA's 2009 budget represents major increases for information technology investments related to consular services and for outreach to Portuguese communities abroad. The latter funds are also expected to be used for increased economic diplomacy, in which the MFA and its embassies will take greater steps to promote Portuguese exports. Defense -------------- ¶8. (U) Budget of 2.24 billion euros; up 3.9% from 2008. The Ministry of Defense (MOD) budget represents 1.3% of GDP, far below the 2% NATO target, even though the MOD looks to make key investments in equipment and infrastructure. Nonetheless, personnel costs top 1.2 billion euros, 54% of the ministry's budget. ¶9. (U) The budget specifies that Portugal will continue commitments overseas, citing activities in the lusophone world and with the European Maritime Policy, but does not specifically cite NATO commitments in Afghanistan. The army, air force, and navy all received increases of between five LISBON 00002659 002 OF 002 and six percent in their operating budgets. ¶10. (U) "Modernization" is the key word in all discussions of defense investments and the Military Programming line item receives a 54% increase to 314 million euros. None of these funds are earmarked for specific projects, but each of the services has new purchases and major upgrade projects coming on line in 2009. Interior -------------- ¶11. (U) Budget of 1.84 billion euros; up 4.2% from 2008. The Ministry of Interior (MAI) also includes the Republican National Guard (GNR),a paramilitary police force responsible for law enforcement in rural areas in addition to a range of other tasks. Like Defense, the MAI budget is dominated by personnel expenses that total 1.4 billion; 70% of the overall budget. Policy priorities of the MAI are public security and immigration control. ¶12. (U) In keeping with MAI's personnel costs and priorities, the budget authorizes an additional 1,000 soldiers for the GNR and an additional 1,000 agents for the police (PSP). The GNR has several new response corps for civil protection and fire fighting, amongst others, and the PSP has several new task forces against carjacking and other crimes. Comment -------------- ¶13. (SBU) There are no great changes in this year's budget request and for this reason there was little significant criticism from opposition parties. The governing Socialist Party (PS) has maintained throughout its tenure the desire to be fiscally responsible and to cast itself as a better administrator of the state than the Social Democratic Party (PSD) government that preceded it. Given that the current PSD leader is the former Minister of Finance, this appears to be a good strategy. Whatever the GOP's motive, continued low budget deficits are welcome. STEPHENSON