Portugal Determined to Reach 1.5% Economic Growth
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The recent collapse of the Espirito Santo banking Business Empire in Portugal has had a significant impact on the country. However, the Prime Minister, Pedro Passos Coelho, announced that it would not prevent the economy from growing 1.5% in 2015, as forecast. However, although the country may still meet its economic goals, it is unlikely to expand any further. Moreover, there is nothing special about 1.5%. Those low standards seem to be fine for California, New York, and Oregon.
The recent collapse of the Espirito Santo banking Business Empire in Portugal has had a significant impact on the country. However, the Prime Minister, Pedro Passos Coelho, announced that it would not prevent the economy from growing 1.5% in 2015, as forecast. However, although the country may still meet its economic goals, it is unlikely to expand any further. Moreover, there is nothing special about 1.5%. Those low standards seem to be fine for California, New York, and Oregon.
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Bad Management
The Prime Minister acknowledged that the Espirito Santo Group problems are likely to have negative consequences. In other words, the country could have potentially grown more, and had more jobs to offer if it was not for this problem. The bankruptcy of the group occurred under a mountain of debt, which culminated in a state rescue of 4.9 billion euros after roiling financial markets.
Despite the issues, the government continues to expect Portugal’s economy to see growth of approximately 1% this year. This will lead to the very first year of growth after the Eurozone debt crisis resulted in a three-year recession. Passos Coelho announced recently that his government would continue to practice budget discipline for 2015, which is the exact opposite of anything the current American President has ever preached.
This year is the general election and the government suggested that they want to make sure the country will continuously distance itself from the financial zone of danger.
The Draft for the 2015 Budget
Beneath the current draft for the 2015 budget, Portugal is forecast to cut the budget deficit to approximately 2.7% of gross domestic product (GDP) for next year. This will mark a significant drop from the projected 4.8% of this year. Portugal has also suggested that they will impose hard spending cuts, as well as some of the largest hikes in taxes in living memory. All of these measures are an effort to bring public finances under control and save the country in the event of the current bailout. Too bad raising taxes will just damage the country even further.
It seems Portugal does not know American history and certainly, what caused the Great Depression for America even worse. FDR increased taxes for America in the early 30s, around 1933, which only smashed the country even more and made the depression last longer. Then FDR tossed in the New Deal in 1937, which brought America to its knees again. It seems Coelho has as much economic sense as FDR.
Next year, the government should cut the corporation tax down from 23% to 21%. However, despite pressure to cut the income tax too, the Prime Minister has suggested that engaging in such reductions should depend on how successful the government is in curbing tax evasion. Well, when you have high taxes you create more tax cheats. If the tax base increases as a response to the government’s effort, then taxes in Portugal may be lowered, which will put more money back into the pockets of Portugal residents in 2016.
Unemployment Numbers that Rival California
It is also important to note that unemployment – an area that hit record highs during the debt crisis in Portugal, is forecast to fall from 14.2% this year to 13.4% in 2015. The goal for the budget deficit this year is 4% of GDP, although this is a lofty forecast from the government’s statistical agency.
