check consistence of expenses made by different public services. Another recent development was the
inclusion in the annual budget of information concerning expenditure compromises for future years (for
instance, resulting from PPP contracts), which enhances the transparency of the budgetary exercise.
4. Results and main trends
Budgetary consolidation reforms that have been implemented since 2002, albeit producing some results,
have not yet been able to put a halt to expense growth, in particular in social security and health areas.
Further consolidation measures are thus warranted for the coming years. Figures^4 concerning the
functional breakdown of general government expenditure are currently available until 2003 and
concerning the economic breakdown until 2004. Therefore, there is not yet clear evidence about the way
consolidation policies are affecting the composition of expenditure^5.
Considering the last 15 years, government expenditure has changed substantially both in terms of size
and of composition. In 1990, total expenditure was 42,5% of GDP, and Portugal was the country in the
euro area with the lowest expenditure ratio. By 2004 this ratio reached 48,4% (almost the same as the
48,6% euro area average). Primary expenditure increased almost 12 points of GDP. Hence, the
substantial reduction in interest payments of 5,8 points of GDP^6 was offset by an increase in other
expenditure items.
The categories that increased the most were social benefits to households (5,5 points of GDP) and
compensation of employees (3,1 points of GDP). Investment had slightly decreased by 0,5 points of
GDP, remaining at 4,7% of GDP in 2004 (2,6% of GDP in the euro area).
Figure 1 - Composition of government expenditure, % of GDP (economic classification)Ot herIntermediate
consumptionCapital expenditureInterestSocial benefits (not
in kind)Compensation of
employees010203040501990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Considering the composition of expenditure in their functional classification (Chart 2), it is clear that
social protection expenditure represented the main contribution to the expenditure increase, with an
increase of 5,7 points to 15,7% of GDP (19,5% in euro area). Spending in health increased 3,1
(^4) Data are in National Accounts, ESA 1995 – 1995 basis.
(^5) Also because some of these policies, while working in the right direction in the long run, have short-term effects that go
in the opposite way.
(^6) Mainly due to the decrease in market interest rate, as debt ratio remained almost the same.