areppim: information, pure and simple
Portuguese government debt (Maastricht debt) keeps riding significantly ahead of Portugal's GDP, especially since June 2011, when right-wing Coelho took office as Prime Minister. The socialist Costa did not perform much better since he took over on November 2015, notwithstanding his cosmetics sleight used to deceive the credulous.
The facts remin unchallenged. The debt upward trend contrasts with the grossly flat trend of GDP (trends are given by the slope of the linear regression lines in the chart). So much for the vain conceitedness of both socialist and rightist claims that each one is more capable than its rival to cure the country's financial ailments. Indeed, exception made of the odd lucky hit, current instances of left and right policies cannot and will not bear anything but identically lame results — forget the labels.
The prime minister does his best to persuade on his country fellows that the economy made a turn-around, the finances got under control, and that a spectacular bonanza awaits the Portuguese around the corner. As the chart data points show, some assuagement resulted from the recent softening of the debt, coupled with the slight progress of GDP. Alas, most of the benefits come from exogenous variables, inherently circumstantial and volatile. The over-sufficient supply by the the European Central Bank (ECB) of cheap money allowing for lower interest rates on the debt has been a great help. But the ECB already announced that the liquidity tap will dry out soon. The avalanche of tourists who deserted other destinations deemed riskier to pour into Portuguese hotel rooms and restaurant halls, leaving a trail of fresh money behind, may wear out over night.
Despite their blustering, government executives can't but do more of the same. On the spending side, they pursue the aggressive pruning of government expenses, mainly in the social sector, thus lowering the level of service in health, education, justice, transportation, utilities, practically everywhere. The national budget becomes an exercise of make-believe. After yielding on various budget items to obtain the parliament vote, thus mollifying the public demands, the government freezes the corresponding appropriations and reneges its commitments. Spending is rubber-stamped only for selected areas. No restrictions for the hush-hush military missions in Afghanistan, Kosovo and Central Africa. Or to provide the owners of idle motorways and second-rate hospitals, or the developers of pointless bullet-trains with juicy rents. Or to finance futile projects expected to yield patronage opportunities to the political caste. Elsewhere it is chaos. Trains do not run for want of material. New pensioners are not paid, for lack of clerks to process their files. Surgeries are indefinitely postponed for shortage of medical teams. Oncology patients wait in the corridors because the wards remain closed. Maintenance of roads and bridges have to wait for better days. Schools become a purgatory for both pupils and teachers. A sure recipe for ruining the nation's strengths and to further plunge public and private agents in debt down the road.
On the income side, the government proceeds with the disposal of the remainders of public assets, thus emptying the nation's treasure chest. To conceal the harsh reality behind a smokescreen of pampering deceit, government manipulates the tax structure in a way to let the citizen believe that his disposable income remains untouched, only to strike him downstream with an orgy of benefit cuts, tax rate increases on consumption, and surcharges on consumption taxes. Alas, as the data show, the bag of tricks quickly exhausts its potential. Government debt, instead of plunging, keeps climbing. In fact it just reached its historical highest in May 2018, and it is stuck above the 125% of GDP mark. It is a bad omen for the commoner, condemmned to further belt tightening, and to seek solace in private debt. For the resourceful ones, they may always resort to their customary deploy of cunning.
Although not inherently bad, government debt may be a curse under some circumstances. Similar in this specif respect to private debt, government debt may dissolve all by itself if inflation runs into high gear. Unfortunately for Portuguese finance's managers, inflation has been and will likely remain inconsequential for yet some time. Debt may also remain a lesser evil if income (fiscal income generated by a swelling GDP) grows at a fast pace. However, if and when debt runs far ahead of GDP, the amount of work and wealth that the nation has to put aside to pay for interest on the debt becomes an overburden, diverting resources from other more advantageous uses: well-being, public health, education, infrastructure, social solidarity, innovation, employment, etc. In the case of Portugal, not only debt runs far ahead of GDP, but it also runs quite faster (the slope of the debt regression line is 958, against an irrelevant 92 for GDP, for the period covered in the chart). This simply means that a chunkier slice of wealth is being allocated to interest remuneration and loan payback, in pure waste of precious resources. Quite a dismal scenario. Government cash-flows will be hard pressed to sustain the current set-up for much longer.
Another issue is the usage made of the debt. The general rule should be to use debt to finance activity whose rate of return is greater than its cost, that is to say the interest rate to be paid to debt holders. In the case of Portugal, and in a context of low inflation, this has not been the case, with the result that the growing debt has been inducing nothing but further belt-tightening and overspread impoverishment.