Inevitable review of the State Budget 2022?
Considering the Draft Law No. 116/XIV/3rd on the 2022 State Budget (2022 DLSB) which, following the impossibility of approving the measure, led the country to early elections, it should now, given the absolute majority in the Parliament of the Socialist Party (PS), be approved.
However, since the submission of the 2022 DLSB to the Assembly of the Republic on October 11, 2021, Portugal and the world face a new economic shock as a result of the military conflict triggered by the Russian Government with the invasion of Ukraine. The Portuguese Government may now have to make a full assessment of the current situation to ensure a better understanding of what could change compared to the original proposal.
Taking into account the decision of the Constitutional Court to annul the counting of emigrants votes in the European Circle and to proceed with the repetition of the electoral acts in such polling stations, the inauguration of the new Government was subsequently delayed. The 2022 DLSB will be submitted by the Government to the Assembly of the Republic and sent to the European Commission within 90 days after the Government takes office (scheduled for March 30th).
Given the framework above, the Portuguese Government’s obligation to review the State Budget (SB) seems inevitable. Despite the relatively low intensity of trade and direct foreign investment with both Russia and Ukraine, Portugal will certainly be affected in an indirect way.
The cession of Russian trade relations with the West, particularly economies with which Portugal has stronger relations, will expose the national markets to this situation.
On the other hand, the most obvious change that should be included in the new proposal for the State Budget is related to the constant and generalized evolution of energy prices that has rapidly spread to other sectors of economic activity, which will prolong and progress the situation of inflation currently experienced, and that may eventually limit the country’s growth capacity.
In this regard, even though the Prime Minister during the electoral campaign avowed that if the electoral result allowed the Socialist Party to form government, they would be in a position to present the same budget without unnecessarily delaying the process. The circumstances now show that this setting is no longer viable.
With the country on hold during this long transitional period that ends with the inauguration of the next Parliament and the new Government, scheduled for the end of March, the budget proposal will certainly have to be adjusted to the new world reality in order to respond to the needs of the country.
The 2022 DLSB should come into legal effect in mid-July. Until then, the country remains under the 2021 SB and governance by twelfths regime.