July 5, 2012 / 2:21 PM / in 6 years

UPDATE 1-Portugal risks missing fiscal goal: monitor

* Parliament body concerned over tax collection

* Lenders consider target reachable despite risks

* Government says working to meet 4.5 pct/GDP target

* Portugal bond yields near lowest level since bailout

By Andrei Khalip

LISBON, July 5 (Reuters) - Bailed-out Portugal is likely to miss the 2012 budget deficit target set by international lenders unless the recession-hit nation sees improved indirect tax revenues, a parliament body that monitors budget execution warned.

The debt-laden country slid into its worst recession since the 1970s after imposing tough tax hikes and spending cuts to put its public finances in order. Unemployment is at record highs of over 15 percent, undermining tax revenues.

The government said last week the budget deficit in the first quarter alone rose to 7.9 percent of gross domestic product from 7.5 percent a year ago, even though it stood at a lower 4.3 percent for the 12 months ending in March.

Parliament’s UTAO body said in a note dated July 2 and made public on Thursday that “the deficit posted for the first quarter is still very distant from the fiscal target for 2012”.

“This way, unless the fall in revenues from indirect taxes and social contributions does not show a significant recovery in the following quarter ... discretionary consolidation measures envisaged in the 2012 budget will hardly allow to meet this year’s target,” it said.

This year’s budget deficit target is 4.5 percent of GDP. Last year, the government met the bailout’s 5.9 percent target but mostly due to an extraordinary one-off transfer of banks’ pension funds to state coffers.

Portugal’s lenders — the European Union and International Monetary Fund — have said the country has to abstain from one-off revenue measures from now on and to rely on spending cuts and structural reforms instead. The one-off transfer is still reflected in the 12-month to March deficit figure.

Despite UTAO’s warning and many opposition deputies calling the government’s austerity policy a failure, Portugal’s lenders and the government remain modestly upbeat about the target. Reflecting that confidence, Portugal’s bond yields are near their lowest levels in more than a year.

At a news conference in Frankfurt, European Central Bank Vice-president Vitor Constancio said a recent review found the programme was still on track in Portugal.

“There were some risks highlighted, but the conclusion was positive,” he said.

The government has acknowledged there are risks but insists the fiscal target can be met, refusing to ask for more time or money from the lenders. It does not rule out additional budget consolidation measures but says it does not plan to resort to them for now.

In an updated report on the review sent to Germany’s parliament, a copy of which was obtained by Reuters on Thursday, the European Commission said “budgetary execution for the first four months of the year was in line with the monthly profile targeted in the budget”.

“The target for the general government deficit of 4.5 percent of GDP in 2012 remains within reach, but budgetary risks have increased significantly due to a less tax-rich composition of growth affecting tax revenues performance,” it said.

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