The budget balance in the first half of the year, adjusted for temporary measures, improved by 6.2 p.p. year on year. Apart from the impact from interests (0.6 p.p.), about one-third of this improvement is explained by a lower impact of measures to address the pandemic and the increase in prices. In this period, the spending related to the pandemic was much lower than in the previous year, in particular on the component related to subsidies to firms. Measures to mitigate the impact from price increases were mainly centred on the reduction of fuel taxation.

For 2022 as a whole, the impact of these measures in the budget balance is close to that of the previous two years, as the reduction in spending associated with the pandemic is almost fully compensated by a higher fiscal cost from the mitigation of inflationary effects. The implementation of the package Famílias Primeiro in the last quarter of 2022 explains, by a large extent, the higher concentration of measures in the second half of the year. This package includes extraordinary measures directed to pensioners, workers, beneficiaries of social transfers and families with children and young people. Nevertheless, there is sufficient margin to accommodate the official target for the deficit of 1.9% of GDP, reaffirmed in the State Budget proposal for 2023.

For more details, see the box “Fiscal developments in 2022”, published in the Economic Bulletin of Banco de Portugal, October 2022.

Prepared by Lara Wemans. The analyses, opinions and findings expressed above represent the views of the author and not necessarily those of Banco de Portugal or the Eurosystem.

If you want to receive an e-mail whenever a new “Economics in a picture” is published send your request to info@bportugal.pt.