Portugal targets first budget surplus in decades, solid growth

By Sergio Goncalves and Catarina Demony

LISBON (Reuters) - Portugal's government unveiled its draft 2020 budget on Tuesday, projecting the country's first fiscal surplus in 45 years of democracy on solid growth and promising a gentle tax reduction for small firms and more taxes on bullfighting events.

"It is the first budget delivered with a surplus," Portugal's finance minister Mario Centeno told reporters. "Growing, consolidating public accounts and reducing debt is very rare worldwide."

The envisaged surplus of 0.2% of gross domestic product comes after a projected deficit of 0.1% for 2019.

The surplus will provide an extra push to alleviate Portugal's debt burden, which is still among the highest in the euro zone but expected to drop to 116.2% of the nation's GDP from this year's 118.9%.

After peaking at over 130% after Portugal's 2011-14 debt crisis and bailout, public debt has been declining since 2015 with spending under control and revenues boosted by new jobs in an economy that has outperformed Europe's average growth.

The economy is expected to expand 1.9% next year, in line with 2019 growth and nearly double the 1.1% pace projected by the European Central Bank for the whole of the common currency bloc.

The minority Socialist government of Prime Minister Antonio Costa, who won a second term in October, also plans to slightly ease the tax bite on the middle class via additional income tax brackets and for households with many children via higher deductions per child of up to three years old.

Small and medium-sized companies with annual taxable profit of up to 25,000 euros per year will pay a reduced company tax at a rate of 17%, down from 21% now. Reinvested profits of up to 12 million euros will guarantee tax deductions.

On the other hand, a number of indirect taxes will rise, such as on tobacco, lotteries and gambling, as well as drinks with high sugar content.

Criticised over the past four years for slashing the budget deficit to the detriment of public investment in areas such as healthcare and education, the government will reinforce public investment by 600 million euros to 1.345 billion euros.

The health service will get an additional injection of 800 million euros next year to reduce its debt and salaries in the public sector should edge up just 0.3%.

Facing pressure from his former far-left allies and the centre-right opposition for a costly cut in the value-added tax (VAT) on energy, Costa has been negotiating support for his budget with small parties, notably environmentalist animal rights party PAN, to reach a majority at a much lower price.

In a clear nod to PAN party, which managed to elect four lawmakers in October, the Socialists said VAT on tickets to bullfighting events will increase, from 6% to 23%.

The budget bill faces its first vote in parliament on Jan. 10, to be followed by detailed discussions in committees, and the final vote on Feb. 6.

(Reporting by Sergio Goncalves and Catarina Demony; Writing by Andrei Khalip; Editing by Tom Hogue and Sam Holmes)