Portuguese Economy Succumbs to the Welfare State

The welfare state is the biggest peacetime threat to freedom and prosperity that we face in our time. This blog has documented over and over again how the welfare state brings economies to their knees and – unintentionally – opens the door for totalitarianism.

Today we can offer yet another small but telling example of the economic effects of the welfare state. This story, reported by the Washington Examiner, provides a good street view of what happens when government over-promises entitlements to its citizens:

Portuguese doctors are staging a 48-hour strike to protest austerity measures they say are weakening the country’s publicly-funded health service. The government has to reduce health spending as part of deep budget cuts promised in return for a €78 billion ($96 billion) bailout last year.

Socialized, government-run, government-funded health care is one of the most dangerous features of the welfare state. See this book for an overview of the theory, and this one for a study of the malpractice, of single-payer health care. It inevitably brings about a fiscal crisis that always comes on top the contributions toward that same crisis from other welfare-state programs. The Washington Examiner story clearly indicates this when it explains that the Portuguese government had to get a bailout in the first place: the bailout was put in place because the Portuguese government has had problems paying for all its spending for many years – including health care.

Eurostat data shows beyond any shred of a doubt that excessive government spending is nothing that Portugal invented yesterday:

When a government increases its debt as share of GDP, and does so year after year, then the reason is not a recession – it is structural over-spending. That, in turn, is the very essence of the welfare state.

Other Eurostat numbers show that in 2009 welfare spending – which technically is poverty relief and only a part of welfare state spending – was at 27 percent of the Portuguese GDP, up by one third in a decade.

This spending crisis has not been helped by the fact that government obviously has to pay for its outlays with taxes. Analyzed over a longer period of time, the Portuguese economy has suffered one of the largest increases in the tax burden of any industrialized country: from 1965 to 2005 the tax burden in Portugal – taxes as share of GDP – more than doubled, from 15.9 to 34.7 percent. Only two other countries, Spain and Turkey, saw larger tax increases over that period of time.

With all this in mind, it should come as no surprise to anyone that between 2000 and 2010 Portugal’s GDP grew at the third slowest rate in the EU, only 0.7 percent per year, adjusted for inflation. With such meager growth comes equally meager growth in the tax base; if you don’t keep government spending in check you end up with runaway deficits. And you can’t keep government spending in check so long as you keep the welfare state.


The Washington Examiner also mentions that:

The government has also increased nominal charges for some services. Emergency room charges have risen to €20 from €9.60.

This is what happens when you have a government-run health care systems on top of every other entitlement program in the welfare state. The Portuguese people are not getting more health care out of paying these fees on top of the high taxes they already have to dole out for the very same health care.

This is yet another symptom of what happens when you try to save a welfare state by means of austerity.