The weights of public salaries and total public expenditure in Portugal measured as a proportion of Gross Domestic Product (GDP) are among those that have fallen the most in Europe since 2015, the first full year after the troika adjustment and in which the Eurozone crisis finally dissipated, or since the eve of the great global financial crisis that began in earnest in 2008 with the bankruptcy of banks around the world. The same crisis that later migrated to public accounts when governments were called upon to support the banks. And ditto, since the end of the pandemic.
According to DN/DV calculations based on new data from the European Commission (EC) published in the autumn forecast harvest, last Monday, there are several countries in Europe that never returned to the levels of public expenditure (total current expenditure and expenditure on personnel/salaries, the item with the greatest weight in the total) seen before 2008.
Between 2008 and 2026 (new Brussels forecast), Portugal records the fourth largest reduction in the ratio of current expenditure to GDP in the euro zone, despite being one of the countries that still carries one of the largest burdens of expenditure on debt interest.
Based on EC data, Portugal currently has expenditure that is structurally around two percentage points or more below the level that prevailed before the great financial crisis.
In 2026, the Commission predicts that Portugal will record a current expenditure ratio of 39.8% of GDP, the sixth lowest in the euro area and well below the average for the single currency region, which is 45%. The adjustment is structural because for many years, even after the bankruptcy, the expenditure level used to be at 43% or 44%. The historical average from 1995 to 2015 is 42%.
Since 2008, the biggest adjustments have occurred, unsurprisingly, in the countries that struggled most with the banking crisis and its migration to public accounts. Ireland, Malta, Greece and Portugal were, in this order, the countries that adjusted the most.
Public salaries are, as we know, the main expenditure item and, say several economists, also the most rigid. But here, the recent history of Portugal and Europe shows that the public wage bill (as a proportion of GDP, once again) has been falling gradually and significantly.
Salary expenditure is worth almost 30% of the total, and data from Brussels show that this item has been decisive for the structural adjustment of public accounts, which today deliver surpluses, those that allow creditors (banks, above all) to be paid to reduce the debt burden (the main objective of the European Stability Pact).
From the beginning of the great global crisis in 2008 until 2026 (forecast), the EC signals that Portugal will have the third biggest drop in the weight of public salaries in all of Europe, a reduction equivalent to 2.3 percentage points of GDP. Since the pandemic ended, the dynamics are similar.
Thus, Portugal currently has a salary expenditure burden that, slightly above the European average (10.8%), is almost in line with the Euro Zone reference values (10%).
If it depends on this government, this effort will have to continue to reduce the debt.
The Ministry of Finance, today led by Joaquim Miranda Sarmento, like its predecessors, has advanced with measures that lead to a nominal increase in public salaries and sectoral valuations above the norm (in the case of teachers), in an attempt to recover from more than a decade of freezing of progressions and careers.
According to the Technical Budget Support Unit (UTAO), which advises Parliament on these issues, “the salary update for Public Administration employees comprises around a third of the total increase predicted for the personnel expenditure item in 2026”, but “this update model, in itself, continues to contribute to salary compression within the careers of Public Administration workers”.
However, Miranda Sarmento has already made it known that more action is needed and in the State Budget for 2026 (OE 2026) he plans to interrupt the successive annual increase, since 2014, in the number of public employees.
UTAO confirms that Finance, despite wanting to stop the increase in the number of employees this year, postponed the objective until next year.
“In the OE 2026 proposal report, the Government indicates that it will not achieve the objective of freezing the number of Public Administration workers in 2025, by predicting that, in 2026, the objective will be to maintain the number of public servants calculated in June 2025 (around 760.7 thousand), that is, a year-on-year growth of 1.5% (11,030 more employees) and 1% (more 7,171 employees) compared to December 2024”.
According to UTAO economists, “this objective — which aims to break the successive growth trend observed since 2014 — implies the application of the rule of one entry for each exit, which, in itself, has an impact on the reduction of the PA payroll” so “the expected increase in personnel expenses in 2026 will result from the increase in average remuneration (including the mitigating impact of the substitution effect)”.