Proposal for a COUNCIL OPINION on the economic partnership programme presented by Portugal
Date: 2016-11-16
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Portugal, budget deficit, budgetary equilibrium, organisation of health care, social security, stability pact, structural adjustment, tax reform

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   EUROPEAN COMMISSION  Brussels, 16.11.2016  COM(2016) 900 final 2016/0358 (NLE)   Proposal for a COUNCIL OPINION on the economic partnership programme presented by Portugal  
 
 
2016/0358 (NLE) 

Proposal for a 

COUNCIL OPINION 

on the economic partnership programme presented by Portugal 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union, 

Having  regard  to  Regulation  (EU)  No  473/2013  of  the  European  Parliament  and  of  the 
Council of 21 May 20131 on common provisions for monitoring and assessing draft budgetary 
plans and ensuring the correction of excessive deficit of the Member States in the euro area, 
and in particular Article 9(4) thereof, 

Having regard to the proposal of the European Commission, 

Whereas:  

(1) 

(2) 

(3) 

(4) 

The Stability and Growth Pact (SGP) aims at securing budgetary discipline across the 
Union and sets out the framework for preventing and correcting excessive government 
deficits.  It  is  based  on  the  objective  of  sound  government  finances  as  a  means  of 
strengthening  the  conditions  for  price  stability  and  for  strong  sustainable  growth 
underpinned by financial stability, thereby supporting the achievement of the Union's 
objectives for sustainable growth and jobs. 

Regulation  (EU)  No  473/2013  of  the  European  Parliament  and  of  the  Council  of  21 
May 2013 on common provisions for monitoring and assessing draft budgetary plans 
and ensuring the correction of excessive deficit of the Member States in the euro area 
sets out provisions for enhanced monitoring of budgetary policies in the euro area and 
for  ensuring  that  national  budgets  are  consistent  with  the  economic  policy  guidance 
issued in the context of the SGP and the European Semester. Since purely budgetary 
measures might be insufficient to ensure a lasting correction of the excessive deficit, 
additional policy measures and structural reforms may be required. 

Article  9  of  Regulation  (EU)  No  473/2013  sets  out  the  modalities  for  economic 
partnership  programmes,  to  be  submitted  by  euro  area  Member  States  under  an 
excessive  deficit  procedure.  Setting  out  a  roadmap  of  measures  to  contribute  to  an 
effective  and  durable  correction  of  the  excessive  deficit,  the  economic  partnership 
programme  should  detail,  in  particular,  the  main  fiscal-structural  reforms,  notably 
those  referring  to  taxation,  pension  and  health  systems  and  budgetary  frameworks, 
which  will  be  instrumental  to  correct  the  excessive  deficit  in  a  timely  and  durable 
manner.  

On 2 December 2009, the Council adopted  a decision according to Article 126(6) of 
the Treaty, whereby Portugal was placed in an excessive deficit procedure. In October 
2012  and  subsequently  in  June  2013,  the  Council  adopted  revised  recommendations 
under  Article  126(7)  of  the  Treaty  in  the  context  of  an  excessive  deficit  procedure 
which was opened before the entry into force of Regulation (EU) No 473/2013. In line 

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OJ L 140, 27.5.2013 p. 11. 

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with Article 7(1) of Regulation (EU) No 472/2013 of the European Parliament and of 
the  Council  of  21 May  2013  on  the  strengthening  of  economic  and  budgetary 
surveillance of Member States in the euro area experiencing or threatened with serious 
difficulties with respect to their financial stability, Portugal reported in the framework 
of  its  macroeconomic  adjustment  programme  and  was  therefore  not  requested  to 
present  an  economic  partnership  programme  in  June  2013  following  the  revised 
recommendation  under  Article  126(7)  of  the  Treaty.  On  12  July  2016,  the  Council 
adopted a  decision  in  accordance with  Article 126(8) of the Treaty,  establishing that 
Portugal  did  not  take  effective  action  to  correct  its  excessive  deficit  by  the  2015 
deadline.  Further  to  this,  on  8  August  2016,  the  Council,  in  accordance  with  Article 
126(9) of the Treaty, decided to give notice to Portugal to take measures for the deficit 
reduction  judged  necessary  in  order  to  remedy  the  situation  of  excessive  deficit  by 
2016.  The  Council  decision  to  give  notice  in  accordance  with  Article  126(9)  also 
specified that Portugal, in view of the macroeconomic adjustment programme, should 
present an economic partnership programme by 15 October 2016, in line with Articles 
9(3) and 17(2) of Regulation (EU) No 473/2013.  

On  21  October  2016,  Portugal  presented  to  the  Commission  and  to  the  Council  an 
economic  partnership  programme,  setting  out,  in  particular,  fiscal-structural  reforms 
that  aim  at  ensuring  an  effective  and  lasting  correction  of  the  excessive  deficit.  The 
economic  partnership  programme  includes  fiscal  structural  measures  aimed  at 
addressing  the  Council's  requests  in  its  decision  under  Article  126(9),  including 
measures on the fiscal and budgetary frameworks and on the pension and healthcare 
systems.  The  document  also  includes  measures  aimed  at  enhancing  competitiveness 
and  long-term  sustainable  growth  in  line  with  the  Council  Recommendations 
addressed to Portugal in the context of the European Semester. Specifically, the fiscal-
structural measures planned by Portugal are the following:  i) conducting expenditure 
reviews;  ii) improving  the  transparency  of  public-private  partnerships  (PPPs); 
iii) improving  the  funding  and  sustainability  of  the  social  security  sector;  and 
iv) improving  efficiency  and  sustainability  of  the  health  sector.  If  effectively 
implemented, these measures can be expected to contribute to the lasting correction of 
Portugal's excessive deficit situation. 

The  rigorous  implementation  of  the  budget,  including  through  the  freezing  of 
intermediate consumption, can be expected to deliver the fiscal effort requested by the 
Council  for  2016  and  ensure  a  correction  of  the  effective  deficit  by  the  deadline. 
However, risks to a timely and durable correction remain, notably due to the impact of 
the  direct  effect  of  potential  bank  support.  For  2017,  even  assuming  the  full 
implementation of the 2017 Budget according to the budgetary targets set in Portugal's 
Draft Budgetary Plan for 2017, the planned structural adjustment would point to a risk 
of some deviation from the required adjustment path towards the MTO in 2017. The 
assessment based on the Commission 2016 autumn forecast points, instead, to a risk of 
significant deviation from the adjustment path towards the MTO. 

The  on-going  spending  reviews  can  be  expected  to  concur  to  maintaining  fiscal 
sustainability  in  the  medium  term  as  they  would  identify  efficiency  gains  and  fiscal 
savings in the public administration and state-owned enterprise sector (SOEs), which, 
if swiftly implemented, would be ultimately reducing their need for transfers from the 
state. As the reviews have only  been launched recently, the overall potential savings 
identified so far are still relatively moderate (around 0.1% of GDP over a three-year 
period  for  the  expenditure  review  according  to  the  Draft  Budgetary  Plan  for  2017). 

(5) 

(6) 

(7) 

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(8) 

(9) 

The  contribution  of  these  reviews  to  addressing  the  challenge  of  fiscal  sustainability 
will need to be carefully monitored. 

Following recent improvements, a review of the public procurement code  planned 
to be concluded by the end of 2016  may yield some efficiency gains from improved 
transparency for public-private partnerships (PPPs) and concessions. At the same time, 
the  economic  partnership  programme  also  expects  transparency  improvements 
regarding PPPs and concessions to materialise at the regional and local levels and for 
port terminal concession contracts. Nonetheless, the economic partnership programme 
does not provide any indication of the impact of these reforms on the budget balance.  

Regarding the measures aimed at improving the financing and sustainability of social 
security,  the  authorities  plan  gradually  to  reduce  to  zero  the  extraordinary  transfers 
from  the  state  budget  by  2019  in  line  with  the  continued  economic  recovery.  At  the 
same time, Portugal is planning a reassessment of the sustainability and adequacy of 
the pension system with the intention of keeping a neutral impact of possible measures 
on  the  fiscal  position.  Challenges  on  how  to  ensure  sustainability  in  the  short  and 
medium  term  remain  and,  when  referring  to  the  currently  planned  comprehensive 
study  on  the  diversification  of  funding  sources  and  other  measures,  the  programme 
does not yet provide enough information on how such challenges would be addressed.  

(10)  Finally,  measures  aimed  at  improving  the  efficiency  and  sustainability  of  the  health 
sector,  including  strengthening  transparency  and  auditing  as  well  as  conducting  a 
review  of  agreements  and  subcontracts,  while  pointing  to  the  right  direction,  are  not 
yet  fully  specified  and  sufficient  information  regarding  concrete  future  efficiency 
gains  apart  from  the  ones  identified  in  the  spending  review  is  not  provided.  A  new 
National Health System funding line from the new tax on sugary drinks is expected to 
yield an annual EUR 80 million in additional revenue for the health system, 

HAS ADOPTED THIS OPINION:  

The  economic  partnership  programme  of  Portugal  presented  to  the  Commission  and  to  the 
Council  on  21  October  2016  includes  a  broadly  adequate  set  of  fiscal-structural  reforms, 
which would be supportive to an effective and lasting correction of the excessive deficit, as a 
development  of  its  National  Reform  Programme  and  Stability  Programme.  Specifically,  the 
economic partnership programme confirms the reform agenda for fiscal and other  structural 
reforms included in the National Reform Programme and provides some further details on the 
implementation  of  some  of  these  measures  since  its  submission  and  on  the  timelines  for 
follow-up.  At  the  same  time,  some  recommendations  by  the  Council  are  still  only  partly 
backed by concrete measures, notably those regarding the sustainability of the social security 
system. The Commission and the Council will monitor the implementation of the reforms in 
the context of the European Semester and the post-programme surveillance. 

Done at Brussels, 

For the Council 
The President 

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