Budget Outturn Summary Report Monthly edition Portuguese version published on the 23 rd December Budget General Directorate

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2 Monthly edition Portuguese version published on the 23 rd December 2016 Budget General Directorate Internet site:

3 1. Summary OVERALL BALANCE 1. Summary According to the January to 1 implementation data available, the General Government deficit, on a cash basis approach (that is, revenues minus payments) amounted to 4,335.8 million euros, million euros lower than in the same period of the previous year. Until November, General Government s revenue increased in a higher proportion (1.9%) compared to the expenditure s rate of growth (1.3%). Note that the primary balance was positive (3,645.7 million euros), 713 million euros higher than in the previous year. Revenue rise was due to the positive evolution of its components, with the exception of direct taxes. Expenditure growth resulted from an increase in employees compensation, social benefits (with the exception of unemployment benefits) and direct State debt interest and other charges, partially offset by a decrease in current and capital goods acquisition. In terms of General Government subsectors, the balance evolution was due to the increase in Social Security surplus (in million euros) and in Local and Regional Government s balance (in million euros). Table 1 General Government budgetary implementation revenue, expenditure and balance Period: January to November Millions Overall balance Revenue Expenditure YOY Change Rate (%) Nov-2015 Nov-2016 Nov-2015 Nov-2016 Nov-2015 Nov-2016 Revenue Expenditure Central Government and Social Security , , , , , ,7 1,9 1,4 Central Government (CG) , , , , , ,9 0,7 1,1 State subsector , , , , , ,3 1,1 2,0 Autonomous Services and Funds 79,5 262, , , , ,6 1,2 0,5 of which: CG State Owned Enterprises -954,4-716, , , , ,5 2,1-0,9 Social Security 832, , , , , ,2 4,2 2,2 Regional Government -141,2 34, , , , ,2 5,6-2,4 Local Government 600,7 604, , , , ,6 0,8 0,8 General Government , , , , , ,3 1,9 1,3 Note: Cash basis amounts not consolidated of flows among different subsectors; differences against the values published in 2015 are due to data updates. Source: Budget General Directorate Central Government and Social Security balance amounted to -4,975.5 million euros (-5,189.1 million until November 2015), while the primary balance was 2,791 million euros (+2,256.7 million until November 2015). Revenue s rate of growth (1.9%) was superior to expenditure s in o.5 p.p.. On its turn, the primary expenditure grew 1.1%. 1 The budgetary implementation in the first three months of 2016 followed the rules established for the interim period (Decree-Law No. 253/2015 of 30 th December), which prevailed until the entry into force of the 2016 State Budget (31 st March). 1

4 1. Summary Regional and Local Government recorded a balance of million euros (604.8 million euros for the Local Government and 34.9 million euros for the Regional Government). This result compared favorably to million euros until November

5 2. Central Government and Social Security 2. Central Government and Social Security OVERALL BALANCE Central Government and Social Security overall and primary balances until November of 2016 reached -4,975.5 and +2,791 million euros, respectively, results having implicit an improvement of the overall and primary balance (in and million euros, respectively) over the same period of the last year. Revenue increased 1.9%, while expenditure grew 1.4%. Table 2 - Central Government and Social Security Consolidated Account Period: January to November Revenue/exependiture/balance Cumulative implementation YOY cumulative change Absolute Relative (%) October November October November Million euros YOY Change Rate Contrib. (p.p.) Current revenue , ,5 822, ,4 1,5 1,6 1,6 Tax , ,5 109,7 164,0 0,3 0,4 0,3 Direct taxes , ,6-865,6-939,6-5,9-5,9-1,5 Indirect taxes , ,9 975, ,6 5,3 5,3 1,8 Social security contributions , ,2 560,5 629,1 3,6 3,7 1,0 Current transfers 1 203, ,7 384,3 419,4 36,3 34,9 0,7 Other current revenue 6 723, ,0-75,0-59,9-1,2-0,9-0,1 Consolidation differences 291,4 143,1 Capital revenue 868, ,7 144,7 187,4 17,4 21,6 0,3 Sale of investment goods 185,3 202,6-7,0 17,3-3,9 9,4 0,0 Capital transfers 637,0 811,8 112,0 174,8 18,5 27,4 0,3 Other capital revenue 33,4 41,0 7,0 7,6 21,2 22,7 0,0 Consolidation differences 12,6 0,2 Effective revenue , ,2 966, ,8 1,7 1,9 Memo Item: Tax and contributions revenue , ,7 670,1 793,1 1,4 1,5 1,3 Non tax revenue 9 086, ,5 296,6 398,6 3,6 4,4 0,6 Current expenditure , , , ,0 2,3 2,4 2,2 Employees , ,3 470,7 559,5 3,6 4,0 0,8 Purchase of goods and services 7 356, ,1-185,4-180,3-2,8-2,5-0,3 Interests and other charges 7 445, ,4 337,2 320,6 4,8 4,3 0,5 Current transfers , ,6 791,4 886,9 2,6 2,6 1,3 Subsidies 986,2 973,3-7,4-12,9-0,9-1,3 0,0 Other current expenditure 536,4 503,4-34,1-33,0-7,0-6,1 0,0 Consolidation differences 33,1 7,2 Capital expenditure 3 447, ,3-534,0-536,9-16,5-15,6-0,8 Investments 2 245, ,1-266,1-282,9-12,7-12,6-0,4 Capital transfers 1 118,0 901,6-219,7-216,4-20,6-19,4-0,3 Other capital expenditure 68,0 18,0-50,4-50,0-75,5-73,5-0,1 Consolidation differences 15,3 27,6 Effective Expenditure , ,7 812,1 978,2 1,3 1,4 Memo Item: Current and capital transfers , ,2 571,8 670,5 1,8 1,9 1,0 Other current and capital expenditure 604,3 521,4-84,6-82,9-15,2-13,7-0,1 Overall balance , ,5 154,6 213,6 Primary expenditure , ,3 475,0 657,5 0,9 1,1 1,0 Current balance , ,9-524,1-510,6 Capital balance , ,6 678,7 724,2 Primary balance 2 256, ,0 491,8 534,2 Source: Budget General Directorate and Social Security Financial Management Institute 3

6 2. Central Government and Social Security EXPENDITURE Central Government and Social Security expenditure increased 1.4% while the primary expenditure grew 1.1%, explained by the evolution of employees compensation and transfers, in particular those relating to the payment of pensions and social benefits (with the exception of unemployment benefits), and to the delivery of contributions to the Single Resolution Fund by the national resolution fund. Note that the interest and other debt charges expenditure increased by 4.3%. Both expenditure and primary expenditure s year-on-year change rate showed an acceleration (increase of 1.3% and 0.9% until October, respectively), which in the case of the latter was mainly the consequence of dispersed factors, of which highlight the acceleration of transfers (+1.9%, compared with 1.8% until October). The employees compensation increased 4% (+3.6% until October) primarily as a result of the budgetary impact of the additional reversal of the remuneration reduction in Public Administration 2. This expenditure component s evolution was influenced by the different pattern of payments of the public employers contributions to the social security system, taking into consideration the legal deadlines for the entities to proceed to the delivery of these amounts. Excluding this effect and taking into account the adjustments related to the implementation reporting 3, employees compensation would have increased 3.3% (+2.9% until October). As above mentioned, it s important to stress out the effect associated with the reversal of the remuneration reduction in Public Administration (of 20 additional 4 percentage points in each quarter), in compliance with the phased disposal scheme of that measure during the course of It is also relevant to stress some particular sectoral effects, particularly the following: the increase of the number of staff in the National Health Service; the impact associated with the Arbitration Court s decision on previous years promotion procedures by the Institute for Employment and Job Training. Finally, it should be mentioned the effect of compensation payments in 2016 for the expiration of the contracted teaching staff. The purchase of goods and services expenditure change rate (-2.5%) was determined by several dispersed factors, with incidence on Environment, Defense, Justice and Internal Affairs. This expenditure component showed a slightly less sharped contraction (-2.8% until October), mainly due to the acceleration of the National Health Service s expenditure with clinical consumption material. Interest and other charges expenditure increased 4.3%, mainly explained by the evolution of direct State debt interest charges (+5%). This result reflected mainly the evolution of the Treasury Bonds outstanding 2 The Law No. 75/2014, of the 12 th September established new remuneration reductions: 3.5% of the total value of remuneration over 1500 and less than 2000 plus 16% of the value of total compensation in excess of 2000, making an overall reduction between 3.5% and 10% in the case of greater than or equal remuneration 2000 up to 4165; for wages greater than 4165, a single cut rate of 10% is to be applied. The same law reverted the remuneration reduction by 20% in In fact, some entities of the Health program that integrated the institutional perimeter of the Central Government in 2015 recorded incorrectly the salaries paid in employees compensation by their net value and the tax withholding as extra-budgetary items. 4 Additional with reference to the reversal of 20% already having occurred in At the rate of 20 percentage points per quarter, in accordance with Article 2 of Law No. 159-A / 2015, December 30. 4

7 2. Central Government and Social Security REVENUE since 2015, as well as the increase, particularly in January 2015, in the public debt stock represented by instruments for household savings (Treasury and Saving Certificates), with impact on the interests paid in The slowdown in interest and other charges compared to the previous period (+4.8% until October) was due to the sharper contraction of interest expenses related to borrowings contracted under the Portuguese Economic and Financial Adjustment Program. Transfers change rate was +1.9% (roughly in line with the result observed until October, +1.8%), to which contributed mainly: i) The increase in social security pensions (+2.5%); ii) The rise in social benefits (excluding pensions and unemployment benefits) (+4.3%), highlighting the benefits attributed under the Social Integration Income, by parenthood and by illness; and iii) The delivery, for the first time in 2016, of the contributions of credit institutions and investment firms charged at national level to the Single Resolution Fund set up under the Single Resolution Mechanism 6. The decrease in subsidies (-1.3%), as well as the greater reduction regarding the previous period (-0.9% until October), was influenced by the evolution of expenditure associated with the support for active employment policies by the Employment and Vocational Training Institute, given the continued decline in unemployment. The investment expenditure fell by 12.6% (approximately the same reduction observed until October, %), especially as a result, on the one hand, of the lower volume of investments in the Alqueva 7 Multipurpose Undertaking, an effect that was partly associated with the transition between European Union multiannual financial frameworks; and, on the other hand, of the 2015 base effect associated with capital expenditure within the Marão 8 s tunnel construction. Central Government and Social Security revenue increased 1.9% until November of 2016, with emphasis on the contribution of the contributory revenue (1 p.p.), non-tax and non-contributory revenue (0.6 p.p.) and the tax revenue (0.3 p.p.). The higher level of revenue growth (+1.7% up to October) was attributable, to a greater extent, to the acceleration of revenue of transfers from the European Union budget (+31.3%, compared to +26.6% until October). Tax revenue evolution (+0.4%) was the result of the increase in indirect tax revenues (+5.3%), despite the direct taxes revenue contraction (-5.9%). Direct taxes reduction (which remained at the same level observed until October) was justified by the decrease in the Personal Income Tax revenue (-4.6%) - attributable to the reduction of the surcharge and the increase in refunds - and in the Corporation Income Tax revenue (CIT) (-9.6%) - explained by the change in 6 The Single Resolution Mechanism is an existing system in the European Union which aim is to ensure the resolution of non-viable financial institutions. It was established by the Regulation (EU) No 806/2014 of the European Parliament and of the Council, of 15 July Alqueva Dam, the largest strategic water reserve in Europe. 8 Marão, which is located in the north of Portugal, is the sixth highest mountain in Continental Portugal 5

8 2. Central Government and Social Security investment funds taxation as well as by the reduction of the CIT rate from 23% to 21% in 2015, with impact on the 2016 revenue. Indirect taxes revenue growth (+5.3%, evolution rate equal to that observed until October) was largely due to the behavior of the tax on oil and energy products (+17.5%) - justified in part by the rate increase -, the Tobacco tax (+20.7%) - explained by the normal low level of consumption at the beginning of the fiscal year of 2015, which has not been matched in 2016 due to the fact that the 2016 State Budget entered into force only at the end of March (in both years, the respective Budget bill determined a rise in tobacco tax) -, the Stamp Tax (+6.4%) and the Value Added Tax (+0.7%) - a result that already incorporates the effect of the reduction of the rate incident on the provision of food and beverage services. Social Security systems contributions increased 3.7% (in line with the result observed until October, +3.6%), to which contributed, to a greater extent, the rise in the social security system contributions (4.5%) as a result of the improvement of the employment s evolution -, since the increase in contributions recorded by the Caixa Geral de Aposentações 9 was more moderate (+1%). The non-tax and non-contributory revenue increase (+4.4%), as well as the evolution compared to that observed until October (+3.6%), was mainly due to the behavior of revenue from the European Union (which grew 31.3% until November and 26.6% until October), mainly under the European Social Fund and, albeit to a lesser degree, from the European Agricultural Fund for Rural Development; and the delay in the delivery of contributions to the national Resolution Fund by the participant entities in 2015, compared with Caixa Geral de Aposentações (CGA) is the public body that administrates the Portuguese civil servants pension scheme. 6