The black hole that is the Portuguese public finances

The Portuguese Prime-Minister came to the television last Wednesday (9/29) announcing the new government plan to diminish the national deficit as promise to the EU. The principal measures of this new plan are the raise in 2% of the higher VAT rate, to 23%, and the wage reduction of the public employers in 5% implemented progressively for wages above €1.500,00. The PM also spoke about the intension of reducing the State expenses but without describing or quantifying this intensions and that is the problem. This plan is necessary, about that are no doubts, but it should be implemented last year and not only now with all the costs that this delay implies and the this postponement was only because of the selfishness and personal interest of the PM to win the last year elections and attempted to not have associated to his name this measures, with the unpopularity this plan implies.

But as initially mentioned the problem are the State expenses, because the increase of the VAT produce an immediately enlargement of the incomings in State budget but after the initial impact can reduce the tax incoming via the consume reduction and the reduction of the public employers salaries will reduce the expenses with human resources that represents more than 60% of the annual State costs, but that will not change the structural problem that sustains the public deficit because the dimension of the State employers will not be reduce so it is like if the Government did depreciated the national currency, reducing this way the value of this costs and reducing the consume of the families by the inflation of the prices, on this case by the reduction of the families purchasing power, and will not create a sustainable control of the public deficit because naturally the Portuguese will after a small period reclaim the increase of their incomes and the lower of the taxes.

The solution must pass through the extermination of the multiplication of public services in numerous public companies that only serves the propose of creating jobs for the statesman friends and families accumulating operative losses year after year; firing the public employers that committed corruptions of any degree and those who get it the job by corrupted means; creating a justice system efficient and fast on the application; creating an independent unit to control all the public contracts (before the assignment and also for supervise the respect of the values) avoiding this way be usual sideslip of the public constructions; developing a real and efficient legislation against the corruption; ending the accumulation of retirements and the situation of elected statesman have right to received immediately a retirement without having the legal age for it; institutionalizing a moralization conduct on the national politicians class and changing the election system so it would be possible to responsabilize directly any parliamentarian or any statesman something that is not possible actually because persons are voting to elect the candidate for the PM when legally they are voting to electing the parliamentarian who will represents them in the Parliament and is the Parliament who indicates the PM.

Without these measures it is impossible to create and sustain any reduction of the deficit to levels that allow us to reduce our public debt and be able to be fiscally competitive and stimulate the economical activity to rates that support the decrease of the unemployment and the growth of the national wealth.

But for now this plan have succeeded on its goal that it was to calm the financial market and instil on the agents the confidence that Portuguese State will be capable of honour its commitments. The yield of the Portuguese Treasury Bonds is dropping since the announcement of this plan, what proves that was not a speculated attack but the natural distrust of the market.