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Viewing cable 07LISBON1839, PORTUGAL: DEFICIT REDUCTION AHEAD OF SCHEDULE,

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Reference ID Created Released Classification Origin
07LISBON1839 2007-07-16 12:29 2011-08-25 00:00 UNCLASSIFIED Embassy Lisbon
VZCZCXRO3620
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHLI #1839 1971229
ZNR UUUUU ZZH
R 161229Z JUL 07
FM AMEMBASSY LISBON
TO RUEHC/SECSTATE WASHDC 6046
INFO RUCNMEM/EU MEMBER STATES
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS LISBON 001839 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PO
SUBJECT: PORTUGAL: DEFICIT REDUCTION AHEAD OF SCHEDULE, 
MORE MONEY NEEDED FOR EU PRESIDENCY 
 
 
 Summary 
----------- 
1.  Portugal's efforts to reduce its budget deficit were 
ahead of schedule, Ministry of Finance Chief of Staff Goncalo 
Castilho dos Santos told post. It was even possible that the 
government would reach its target to reduce the deficit below 
3% in 2007, a year ahead of schedule, if GDP grew by 2.0%. 
Portugal planned to present its 2008 budget proposal which 
focused on "consolidating the consolidation" by the end of 
July instead of in October to allow the government to focus 
its attention on Portugal's EU presidency.  He also noted 
that the government would allocate an additional 10 million 
euros to the Presidency budget to pay for the EU-Africa 
Summit and other expenses not originally incorporated into 
the 51 million euros originally approved. 
 
Deficit Reduction Ahead of Schedule 
------------------------------- 
2.  Ministry of Finance Chief of Staff Goncalo Castilho dos 
Santos told post that Portugal's efforts to reduce the 
country's budget deficit were ahead of schedule.  Originally 
scheduled to reduce its budget deficit to 3.7% in 2007, the 
government had already revised this year's target to 3.3% due 
to better than expected results in 2006.  It was even 
possible that Portugal could reach its goal of reducing the 
budget below 3% in 2007, a year  ahead of schedule, if GDP 
grew by 2.0% or more as predicted.  The government was also 
on target to reduce its bloated public administration by 
75,000 positions by 2008, with Castilho dos Santos noting 
that a total of 40,000 civil servant positions were expected 
to be eliminated by the end of 2007 through attrition, 
reassignment and consolidation. 
 
Consolidating the Consolidation 
----------------------------- 
3.  Having focused on increasing revenue in 2006 and reducing 
expenses in 2007, the government planned to "consolidate the 
consolidation" in 2008.  The Ministry had worked hard since 
2005 to bring the many off-line expenses and separate budgets 
into a unified budget, consolidating disparate pension and 
social security systems, standardizing civil service 
benefits, and strengthening fiscal supervision.  The 
government planned to present its 2008 budget proposal by the 
end of July instead of in October to allow for early debate, 
thereby enabling the Ministries to focus their full attention 
on Portugal's EU presidency following the August break.  The 
2008 budget proposal includes plans to charge tolls on more 
highways, with part of the revenue going to the Highway 
Administration and part going into central government 
coffers.  The government may begin reducing taxes in late 
2008 if GDP growth permits. 
 
Additional 10 Million Euros for EU Presidency 
------------------------------- 
4.  The government will increase the EU presidency budget to 
61 million euros from the original 51 million euors(45 
million euros for the MFA and 6 million for other ministries) 
initially allocated.  The additional 10 million euros is 
needed to cover the cost of the EU-Africa Summit and other 
expenses not incorporated into the 2007 budget approved in 
December 2006. 
 
PM to Focus on Internal Coordination 
------------------------------ 
5.  Having expended considerable effort to consolidate the 
budget and public administration, Prime Minister Jose 
Socrates is focused on ensuring internal budget coordination 
continues throughout and after Portugal's EU presidency. 
Castilho dos Santos noted that following Portugal's last EU 
presidency in 2000, the lack of internal coordination among 
the ministries precipitated the economy's downturn and 
negative growth from which the country is just now beginning 
to recover. 
 
No Special Treatment for Portugal 
---------------------- 
6.  Although Finance Minister Fernando Teixeira dos Santos 
agreed last week with UK and German officials to accommodate 
France's request for greater flexibility in reducing its 
budget deficit, Portugal has no desire to change its Growth 
and Stability Agreement.  With the government's goal to 
reduce the deficit below 3% (from an all time high of 6% in 
2005) within its grasp, Portugal sees no need to change its 
successful path to economic recovery. 
O'Neal