2005/135/EC: Council Decision of 11 May 2004 abrogating the decision on the existence of an excessive deficit in Portugal
Date: 2004-05-11
Institutions: Council of the European Union
Subjects: Portugal, budget deficit, gross domestic product, public administration, public debt, stability pact

L 47/24

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Official Journal of the European Union

18.2.2005

II

(Acts whose publication is not obligatory)

COUNCIL

COUNCIL DECISION

of 11 May 2004

abrogating the decision on the existence of an excessive deficit in Portugal

(2005/135/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty
Community, and in particular Article 104(12) thereof,

establishing the European

Having regard to the recommendation from the Commission,

(4)

(5)

Whereas:

(1)

(2)

(3)

By Council Decision 2002/923/EC (1), following a recom-
mendation from the Commission in accordance with
Article 104(6) of
it was decided that an
excessive deficit existed in Portugal.

the Treaty,

the Treaty,

In accordance with Article 104(7) of
the
Council made a Recommendation addressed to Portugal
with a view to bringing the excessive deficit situation to
an end (2). That Recommendation,
in conjunction with
Article 3(4) of Council Regulation (EC) No 1467/97 of
7 July 1997 on speeding up and clarifying the imple-
mentation of the excessive deficit, procedure (3), estab-
the excessive
lished a deadline for the correction of
deficit, which should be
year
completed in the
following its identification, i.e. 2003 at the latest.

In accordance with Article 104(12) of
the Treaty, a
Council decision on the existence of an excessive deficit
in the
is to be abrogated when the excessive deficit
the
Member State concerned has,
Council, been corrected.

in the view of

The definitions of ‘government’ and ‘deficit’ are laid down
in the Protocol on the excessive deficit procedure by
reference
Integrated
Economic Accounts (ESA), second edition. The data for
the excessive deficit procedure are provided by the
Commission.

European System of

to the

Based on the data provided by the Commission after
reporting by
Portugal before 1 March 2004 in
accordance with Council Regulation (EC) No 3605/93
of 22 November 1993 on the application of
the
Protocol on the excessive deficit procedure annexed to
the Treaty establishing the European Community (4), and
on the Commission Spring 2004 forecast, the following
conclusions are warranted:

— The general government deficit is estimated at 2,8 %
of GDP in 2003, compared with 2,7 % in 2002 and
4,4 % in 2001. The outcome for 2003 complied with
the Council Recommendation issued under Article
104(7), particularly as regards the reduction of the
government deficit below the reference value of 3 %
of GDP by 2003 at the latest. Fiscal adjustment was
pursued in 2003 on the back of a sustained decel-
eration in the pace of total current primary expen-
diture growth from 8,9 % in 2001 to 7,8 % in 2002
and 4,1 % in 2003. However,
the current cyclical
downturn, which ended in a recession in 2003, led
to a significant deviation of 2,6 percentage points
between the GDP growth outcome for the year and
the initial budgetary projection. As a result, a massive
in tax revenue developed during 2003,
shortfall
which had to be offset by the adoption of
two
one-off measures, together worth 2,1 % of GDP.

(1) OJ L 322, 27.11.2002, p. 30.
(2) Council Recommendation of 5 November 2002.
(3) OJ L 209, 2.8.1997, p. 6.

(4) OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regu-

lation (EC) No 351/2002 (OJ L 55, 26.2.2002, p. 23).

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Official Journal of the European Union

L 47/25

— The structural measures taken by the Portuguese
authorities, having a more direct impact on public
finances, fall mainly on three areas: (i) public admin-
istration; (ii) the healthcare sector; and (iii) education.
the quasi-freeze of wage scales and
In particular,
employment in the civil service in the period 2003-
2004 is expected to have favourable base effects in
thereby having a significant structural
the future,
impact.
authorities
the Portuguese
estimate that the ongoing comprehensive reform in
the healthcare sector has already had, in 2003, some
positive effects on both expenditure savings and
productivity gains.

In addition,

— The Commission 2004 Spring forecast projects a
general government deficit of 3,4 % of GDP for
2004, thereby significantly above the official target
of a deficit of 2,8 % of GDP. The difference can
(i) somewhat lower
basically be accounted for by:
growth than assumed in the budget; (ii) base effects
associated with the one-off measures taken in 2003;
and (iii) the planned partial replacement so far of
additional
such
the
measures
government deficit
from rising above the 3 % of
GDP reference value in 2004 and following years.

are needed in order

one-off measures.

to prevent

Therefore,

— After the cut-off date for the Commission Spring
authorities made
the Portuguese
2004 forecast,
public their
(real-
further
intention to carry out
estate related) operations to allow the deficit to stay
below 3 % of GDP in the current year.

— According to the values reported in the first 2004
EDP notification, the government debt ratio was kept
below the 60 % of GDP reference value in 2003,
thereby in accordance with the Council Recommen-
dation issued under Article 104(7), although it has
steadily increased since 2001, and according to the
Commission Spring 2004 forecast,
is projected to
exceed that value in 2004.

(6)

in the light of

Decision 2002/923/EC should therefore be abrogated.
However,
the risks to the budgetary
position highlighted by the Commission Spring 2004
the
forecast,
Portuguese authorities take the appropriate measures to

the utmost

importance

is of

that

it

ensure that the general government deficit remains below
3 % of GDP in 2004 and beyond. Given the continued
sizeable negative output gap projected up to 2005, and
in order to maintain the momentum of budgetary conso-
is
lidation,
acceptable
the
Portuguese
should publicly confirm the
measures planned and their respective amounts, until
measures of a more structural nature exert
their full
exonerating effect on public finances.

in the
authorities

temporary measures

recourse to further

short-term.

In this

regard,

(7)

For the consolidation to be sustained and in order to
eventually achieve the medium-term objective of a
budgetary position of close to balance or in surplus, in
line with the broad economic policy guidelines, all one-
off measures should be gradually replaced by measures of
a more permanent nature, while the cyclically adjusted
budgetary position should improve by at least 0,5 of a
percentage point of GDP per year,

HAS ADOPTED THIS DECISION:

Article 1

From an overall assessment it follows that the correction of the
excessive deficit situation in Portugal was completed in 2003,
under the terms of the Recommendation addressed to Portugal
on 5 November 2002 in accordance with Article 104(7) of the
Treaty.

Article 2

Decision 2002/923/EC is hereby abrogated.

Article 3

This Decision is addressed to the Portuguese Republic.

Done at Brussels, 11 May 2004.

For the Council
The President

C. McCREEVY