Portugal

II - Changes to the Budgetary Process

Budgetary process       
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Portugal.

 Pursuant to art. 105/2 CRP, the budget,[1] a law with enhanced value, is prepared in accordance with the annual Broad Economic Plan and taking into account obligations determined by law or contracts.[2] The Plan Options are voted by Parliament (art. 91 º CRP) and constitute the guidelines for which the Plan itself is organized; they must obey the budget, since they also represent, according to the Constitution, the financial expression of the annual plan. The Government is in charge of submitting the budget proposal to the Parliament. The budget proposal draft is prepared by the Ministry of Finance, and then subject to approval of the Government. By the 15th October of each year, the Government must present the draft State Budget Law to the Parliament. Besides the actual proposal, also budget maps and informative annexes are included.

The Parliament then has to vote the proposed Budget until the 15th of December. This is discussed in a plenary session, being matters such as the creation and extinction of taxes and loans and other financing means taken to a discussion in specialised committees. If one tenth of the deputies so requires, other matters relating to the fiscal regime can also be discussed in committee.

Once the Budget starts being executed, the peculiarity of the system resides with the expenses: each credit cannot be used entirely at once. This means that the expenses should be made and the payments authorized by amounts not exceeding the accrued twelfths. The Parliament, upon approval of the Budget, fixes not only the maximum amount of total expenditure, but also the expenses relating to each chapter and function. The Government cannot, in principle, transfer funds from chapter to chapter/function to function, nor can it open credits which can raise the total expenditure predicted on the Budget. There are some exceptions, amongst which the need for the Government to respond to unforeseen and unavoidable expenses – for such purpose, a reserve fund is annually made in the budget of the Ministry of Finance. One should furthermore note the ‘brake’ provision contained in article 167/2 of the Constitution: no proposals to amend the budget can be submitted during the financial year if they involve an increase in expenditure to a decrease of the State revenue, as provided for in the Budget.

As for the inspection of Budget execution, the control over revenue is made by reference to the duty of the entitled services to collect certain amounts. The expenses’ control is made by reference to the predictions made in the Budget. This control is exercised by the Public Accounts and the Court of Auditors, both a priori and a posteriori, by considering each service’s allocation and the law.[3]

 

General change   
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

The budget is applied by means of the so-called LEO, which establishes the framework for budget application. Since 2001 this law (L-91/2001) suffered several amendments during the Eurozone crisis. Its most meaningful amendment is nevertheless the inclusion of the Balanced Budget Rule (so called ‘golden rule’) (See question IX.5).

 

The LEO also incorporates new principles, as well as serves as means of implementation of Directive 2011/85/EU. A new budgetary model was proposed, based on a reform to be led by the Ministry of Finance. It predicts a phased approach to the budget, based on a detailed plan of action, with technical support being sought in the Commission and the IMF. A multiannual framework plan is established, with tight control mechanisms for expenditure; this plan was presented by the first time to the Parliament in April 2012, together with the Plan for Stability and Growth (PEC).

Another change was the abolishment of the horizontality in the application of the budget: each Ministry started being responsible for its own share of the budget, which reinforces the control. To enhance control, a new and independent entity was created (see questions VII.4 and II.3): the Portuguese Public Finance Council (CFP), which acts as an advising body to the viability of the budgetary measures and public expenditure.[4] The Council’s mission is to conduct an independent assessment of the consistency, compliance with the defined objectives and sustainability of public finances, while fostering its transparency.

Institutional change 
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

No main changes are found in the competences of the institutions. However, the role of the judiciary was enhanced, with the Court of Auditors’ work gaining prominence; on the other hand, a new entity was created: the CFP.

The Court of Auditors is a sovereign body, which competences are defined in article 214 of the Portuguese Constitution. Its independency from the Public Administration ensures a free exercise of its judicial and financial control; it has the duty to examine ‘the legality of public expenditure and rules on the accounts which the law has ordered to be submitted to the Court’.

The Court of Auditors might be asked by the Parliament to provide for ‘intercalary reports’ on the budget control results throughout the year, as well as clarifications which might help the evaluation of the budget.

The Government is also entitled to ask this Court to provide it with audits and opinions; in total, around 7500 entities are subject to control by this Court.

The Portuguese Public Finance Council (CFP), created by the Budget Framework Law in 2011, has the mission to assess, in an independent way, ‘the proposed objectives in relation to the macroeconomic and budgetary sceneries, [and] long-term public finance sustainability’. Its main objectives are the transparency and quality of policy decision making. It is to act as an advisor to the Government by enacting reports on the draft Budget law (for more information on CFP see question VII.4).

The parliament’s Budgetary Technical Support Unit (UTAO) prepares technical analyses of government bills on the state budget and amendments thereto, assesses general state accounts, monitors budgetary execution, and analyses revisions to the stability and growth programme. It functions under the Budget committee’s direct guidance. Having been created in 2006 it has seen its powers amplified in 2014 to monitor and control projects involving public investment. This will include public-private partnerships (PPPs) and concessions, paving the way for an approach that is geared to rolling out projects that are technically and financially sustainable.[5]

 

Change of time-line     
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

Legislatively, the main change can be found in the law establishing the framework for budget application. Before 2011, its article 39° established the deadline for presenting the proposal to the Parliament on the 15th of October, except when there is no Government at that date. After the amendment, these deadlines were changed – although the proposal has to be submitted still by the 15th October, the contemplated exceptions changed the date for the 30th of September, according to the new article 12º-E.

The biggest impact of Euro-crisis law in the budgetary was nevertheless a practical one. Pressured by upcoming troika evaluations the government approved – what proved to be – unrealistic budget proposals. Eight rectifications have been approved in the last 3 years, two rectifications per year, breaking a 1977 record (a time of great economical and political instability in Portugal – following the 1974 revolution). The circumstances that lead to this situation have been subject of much discussion. On one hand, the expected time-line of the budgetary cycle was deemed irrelevant – alterations had to be discussed and approved and months were spent on this process -; on the other hand, the budget itself was emptied of its main function, it became, to a certain extent, a formality.[6]

 

Miscellaneous
II.5
What other information is relevant with regard to Portugal and changes to the budgetary process?

No other relevant information.

[1] http://www.en.parlamento.pt/StateBudgetPublicAccounts/index.html

[2] Article 112.º n.º 3 of the Constitution defines laws of enhanced value as those (…) “besides organic laws, the laws that are approved by two thirds majority, as well as those that the Constitution defined as a normative prerequisite for the approval of other laws or that by the latter must be respected”.

[3] See: http://ec.europa.eu/economy_finance/publications/occasional_paper/2012/pdf/ocp91_en.pdf

[4] http://www.cfp.pt/

[5] The quotations indicate a free translation of articles 214 of the Constitution and 12º-I of Law nº 52/2011, 13 October 2011, respectively.

[6] On the record rectifications of the budget http://www.publico.pt/economia/noticia/governo-de-passos-bate-recorde-nas-alteracoes-de-orcamento-1667701.