The effectiveness of public expenditure in Portugal
Economics Department Working Paper 349. Over the past decade, Portugal has experienced imbalances and inefficiencies in the public sector that have impeded better economic performance. Though Portugal's total spending as a proportion of GDP is somewhat below the EU average, the rapid and uncontrolled growth of its primary current spending to a level now above the OECD and EU average, is worrying, because it puts at risks long-term fiscal sustainability. This paper points to major shortcomings in the budget management process and in the planning and control of public spending. The paper acknowledges recent action taken by public authorities to address some of the shortcomings and makes recommendations for moving further ahead. It suggests policy options that can make public expenditure more efficient and effective at overall levels. Administrative control, the cost-effectiveness of service provision, and incentives for efficient resource allocation all need to be improved. Ongoing efforts to develop accruals-based accounting in line with ESA95 norms should be accelerated and completed. Recent progress towards greater devolution in tax and spending power should go hand in hand with stronger fiscal accountability of local governments. To provide public services in a more cost-efficient way, the public sector should move further towards a budget and management approach geared towards outcomes. Finally, delivery of public services can be improved via market-oriented solutions, while an increase in user charges could be considered as a means to reduce excessive demand for some public services.
Long abstract
