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Portugal Will Narrow 2011 Budget Deficit to About 4% of GDP

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Dec. 20 (Bloomberg) -- Portugal will narrow its budget deficit to about 4 percent of gross domestic product this year following the transfer of banks’ pension funds to the state, Finance Minister Vitor Gaspar said.

“Additional austerity measures are not necessary at the moment,” Gaspar said today at a parliamentary commission in Lisbon.

Prime Minister Pedro Passos Coelho said last week that the pension-funds transfer would help cut this year’s budget shortfall to 4.5 percent of GDP or less. “If we did not have extraordinary measures this year, our deficit would be very close to 8 percent,” Passos Coelho said on Dec. 13.

The government had set a goal to trim the deficit from 9.8 percent of GDP in 2010 to 5.9 percent in 2011 and to 4.5 percent next year. The 2012 budget includes a plan to eliminate the summer and Christmas salary payments for state workers earning more than 1,100 euros ($1,443) a month. Tax deductions will be reduced and the government plans to increase the value-added tax rate on some goods.

Passos Coelho is cutting spending and raising taxes to meet the terms of a 78 billion-euro aid plan from the European Union and the International Monetary Fund. As the country’s borrowing costs surged, Portugal followed Greece and Ireland in April in seeking a bailout and now aims to return to bond markets in 2013.

The Portuguese government said on Dec. 2 that the value of the planned transfer of banks’ pension funds to the state may reach 6 billion euros. The government also announced a Christmas income-tax surcharge to help cover the shortfall this year.

To contact the reporters on this story: Joao Lima in Lisbon at jlima1@bloomberg.net; Henrique Almeida in Lisbon at halmeida5@bloomberg.net

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net

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