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DE RUEHLI #2659/01 2961302
ZNR UUUUU ZZH
R 221302Z OCT 08
FM AMEMBASSY LISBON
TO RUEHC/SECSTATE WASHDC 7097
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 LISBON 002659 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV PO
SUBJECT: PORTUGAL'S 2009 BUDGET TO MAINTAIN DISCIPLINE 
 
¶1. (SBU) Summary.  The Portuguese Government's 2009 budget 
request maintains the record low budget deficit that was 
achieved last year (2.2% of GDP).  There are no major policy 
or spending shifts in the budget request and, for that 
reason, there was little significant criticism from 
opposition parties or the media.  The largest salary increase 
for public workers in the last decade is the only nod to 
populism in the face of upcoming elections.  As the 
government has a majority in parliament, the budget should 
pass without major revision.  End summary. 
 
¶2. (U) The Government of Portugal (GOP) presented its 2009 
budget to the parliament October 15, claiming the budget to 
be an example of "realism, prudence, and rigor."  Portugal's 
fiscal year matches the calendar year.  Although budget 
drafting is a continuous process dating back to the 
presentation of the previous iteration, the GOP said helping 
Portuguese families respond to the current financial crisis 
was the chief orienting principle.  That said, there were no 
grand surprises as resource shifts were relatively small. 
 
¶3. (U) Even though GOP budgets traditionally allocate around 
60% to social functions (health, education, and social 
security), the GOP nonetheless stressed that the 60.3% 
allocated in the 2009 budget demonstrated a commitment to 
"Portuguese families."  In addition to the largest salary 
increase for public workers in the last decade (2.9%), the 
GOP provided tax breaks on the sale of residences and the 
reinvestment of gains into subsequent residences.  Such 
actions were offset in part by increased taxes on personal 
vehicles, petroleum products, and vehicle circulation fees 
(although tax incentives are available for electric vehicles) 
and a public sector that did not replace 12,000 departed 
employees. 
 
¶4. (U) While cynics call it an "everybody wins" budget 
focused on garnering support in advance of the fall 2009 
elections, the 2009 budget maintains the budget discipline 
achieved in the previous year.  The 2008 budget deficit 
equaled 2.2% of GDP, the lowest deficit in the last 30 years. 
 The 2009 budget proposal increases expenditure by 2.3 
billion euros, but this is matched by increased revenue to 
maintain a deficit of 2.2% of GDP. 
 
¶5. (U) The big winners in this year's budget are the 
ministries of Education and Public Works, while the losers 
are the ministries of Culture and Agriculture.  Portugal's 
largest line item is for the Ministry of Health, but its 2.4% 
increase falls slightly short of the 2.5% inflation rate 
predicted for 2009.  One could also consider the Ministry of 
Justice a big winner with a 60% budget increase, but 
virtually all of that is for the purchase and rehabilitation 
of new office space in Lisbon and elsewhere.  The Ministry of 
Justice's real operating expenses increased only 4.5%, 
despite several new large-scale initiatives to counter money 
laundering, narcotics, and corruption. 
 
Foreign Relations 
----------------- 
¶6. (U) Budget of 354 million euros; down 1.2% from 2008. 
Although the Ministry of Foreign Affairs (MFA) officially 
suffered a budget cut, this is only because the 2008 budget 
included leftover expenditures related to Portugal's 2007 
presidency of the European Union.  Although less demanding 
than an EU presidency, in 2009 Portugal continues to chair of 
the Community of Democracies (CD) and will assume the 
presidency of the Ibero-American Conference.  For each of 
these roles, Portugal will host one summit and one 
ministerial during 2009. 
 
¶7. (U) In operating terms, the MFA's 2009 budget represents 
major increases for information technology investments 
related to consular services and for outreach to Portuguese 
communities abroad.  The latter funds are also expected to be 
used for increased economic diplomacy, in which the MFA and 
its embassies will take greater steps to promote Portuguese 
exports. 
 
Defense 
------- 
¶8. (U) Budget of 2.24 billion euros; up 3.9% from 2008.  The 
Ministry of Defense (MOD) budget represents 1.3% of GDP, far 
below the 2% NATO target, even though the MOD looks to make 
key investments in equipment and infrastructure. 
Nonetheless, personnel costs top 1.2 billion euros, 54% of 
the ministry's budget. 
 
¶9. (U) The budget specifies that Portugal will continue 
commitments overseas, citing activities in the lusophone 
world and with the European Maritime Policy, but does not 
specifically cite NATO commitments in Afghanistan.  The army, 
air force, and navy all received increases of between five 
 
LISBON 00002659  002 OF 002 
 
 
and six percent in their operating budgets. 
 
¶10. (U) "Modernization" is the key word in all discussions of 
defense investments and the Military Programming line item 
receives a 54% increase to 314 million euros.  None of these 
funds are earmarked for specific projects, but each of the 
services has new purchases and major upgrade projects coming 
on line in 2009. 
 
Interior 
-------- 
¶11. (U) Budget of 1.84 billion euros; up 4.2% from 2008.  The 
Ministry of Interior (MAI) also includes the Republican 
National Guard (GNR), a paramilitary police force responsible 
for law enforcement in rural areas in addition to a range of 
other tasks.  Like Defense, the MAI budget is dominated by 
personnel expenses that total 1.4 billion; 70% of the overall 
budget.  Policy priorities of the MAI are public security and 
immigration control. 
 
¶12. (U) In keeping with MAI's personnel costs and priorities, 
the budget authorizes an additional 1,000 soldiers for the 
GNR and an additional 1,000 agents for the police (PSP).  The 
GNR has several new response corps for civil protection and 
fire fighting, amongst others, and the PSP has several new 
task forces against carjacking and other crimes. 
 
Comment 
------- 
¶13. (SBU) There are no great changes in this year's budget 
request and for this reason there was little significant 
criticism from opposition parties.  The governing Socialist 
Party (PS) has maintained throughout its tenure the desire to 
be fiscally responsible and to cast itself as a better 
administrator of the state than the Social Democratic Party 
(PSD) government that preceded it.  Given that the current 
PSD leader is the former Minister of Finance, this appears to 
be a good strategy.  Whatever the GOP's motive, continued low 
budget deficits are welcome. 
STEPHENSON