Right accounts

1. I hate the expression ‘right accounts policy’. It’s political marketing, with a tenuous theoretical basis and cloudy practical contours, but it conditions the debate on budgetary policy: Oh, we can’t spend here because of the right accounts; Oh, you can’t get relief there because of the right accounts. In a country that has suffered greatly because of excessive deficits, it is a powerful deterrent. Will it be the defense of the ‘black zero’ (the famous schwarze null inscribed in the German constitution since 2009), that is, the obligation to have public accounts balanced each year? Or is it simply the consideration that a deficit, in any circumstance, makes the government an unrepentant and irresponsible spender?

2. It has long been known that the ‘black zero’ is destabilizing, as it forces the Government to tighten the budgetary belt when the economy is ‘bad’ and to widen it when it is growing well. This, therefore, cannot be what should be understood by ‘correct accounts’. Best practice advises that deficits and surpluses roughly offset each other over the economic cycle. (Aparently, it is on the behavior of this indicator – the so-called structural primary balance, that is, the balance excluded from interest, cyclical or episodic factors – and not on the balance tout court, that the new EU budgetary rules are based to analyze the sustainability of public debt of its members). Between 2015 and 2022 Portugal recorded a structural primary deficit that on average was around 0.4% of GDP, a comfortably low value depending on the reference path of the new budgetary rules. In 2023, Fernando Medina’s annus mirabilis, it is estimated that the structural balance will have reached almost +2% of GDP. Are these ‘correct accounts’? Or, on the contrary, the surplus is a sign of an unnecessarily restrictive budget, carried out by compressing operating expenses, not implementing public investment and with a loss of quality in many services.

3. The so-called ‘golden rule of public finances’ does not advocate ‘correct accounts’, but rather that debt should be issued only to finance capital account deficits, that is, public investment that generates growth and future taxes. Over the last 11 years, investment in fixed capital by Public Administrations has not been enough to cover the consumption of this capital (that is, to prevent the deterioration of the productive capacity of capital goods). Accumulating net (negative) investment between 2011 and 2022, we could have an order of magnitude of the size of the reduction in the public capital stock: around 14 billion euros or 5% of the total value of public debt in 2022. Despite this panorama, in 2023 public investment plans were only 75% implemented. Right accounts? I don’t think so.

4. Having arrived here, here is a dilemma for the new Government. Believing in political marketing, those who have endured, with greater or lesser resignation, the repression of public expenditure, salary cuts, tax increases and degradation of health and education services, and thanks to whom the ‘accounts are right’, want now your lot: ‘It’s payback time’ – they cry. But no one explains to them that, in reality, there is no money to distribute. As Teixeira dos Santos very well noted, the central local and regional public administration account has a deficit of almost 2.5 billion euros (0.9% of GDP) and the global surplus of 3.2 billion is due in exclusive to the social security system, which cannot be used to pay bodo.