Portugal’s 2022 budget deficit shrinks on higher revenue

Tax revenues rise by 14 per cent on robust economic growth

People walk down Rua Augusta street in downtown Lisbon. Portuguese's total public revenue grew by 11 per cent to more than €102 billion in 2022. AFP

Portugal's state budget deficit shrank 58 per cent to €3.59 billion ($3.9 billion) in 2022, thanks to a sharp rise in tax revenues due to robust economic growth amid high inflation, the government said.

Finance Minister Fernando Medina told Reuters in November that the economy was expected to grow at least 6.7 per cent in 2022, buoyed by domestic demand and tourism, after growing 4.9 per cent the previous year as it recovered from a pandemic-induced recession.

The finance ministry said in a statement late on Friday that the improvement in the budget deficit was "justified by the dynamism of the labour market and the economy and by the effect of inflation".

It said that tax revenues increased by around 14 per cent to €25.9 billion last year, boosted by a 19 per cent increase in value added tax revenues to more than €21 billion.

As VAT is a tax on the final price of products and services, its revenues automatically increase whenever there is inflation.

Portuguese consumer prices rose 9.9 per cent year on year in November, just off a three-decade high of 10.1 per cent in the previous month.

The finance ministry said total public revenue grew by 11 per cent to more than €102 billion, while public spending increased by just 5.1 per cent to €105.7 billion.

Prime Minister Antonio Costa last month said that the public deficit could be below 1.5 per cent of GDP in 2022, compared to the previous official forecast of 1.9 per cent and 2021's fiscal gap of 2.9 per cent.