By Sergio Goncalves

LISBON The Portuguese government will end the year with a budget surplus, its second in almost five decades, compared with a deficit equivalent to 0.4% of gross domestic product it forecast two weeks ago, Prime Minister Antonio Costa said late on Monday.

The government is finishing work on the 2024 draft budget to send it to parliament on Oct. 10, which will include the new budget targets for the current year and next year.

Portugal posted a deficit of 0.4% of GDP in 2022.

"This year we are going to have a budget surplus again, despite having charged one billion euros less in personal income tax and having adopted the zero rate of value-added tax (VAT) on basic food staples," Costa said in an interview with broadcaster TVI, without saying how much it will be.

In 2019, before the COVID-19 pandemic, Portugal had a slight surplus of 0.1% of GDP - its first in 45 years of the country's democratic history.

The National Statistics Institute, in the country's excessive deficit procedure reported to Brussels, said two weeks ago that Portugal stuck to its forecast of a deficit of 0.4% in 2023, despite having posted a strong surplus in the first seven months.

Opposition parties criticised the government for failing to redistribute the huge additional revenues from inflation, especially with the value added tax, to families hit hard by rising costs of living and higher interest rates.

Costa said the additional revenue from inflation was extraordinary and that Portugal must maintain a "prudent" budgetary policy and continue to reduce its still high public debt, especially in the current context of high interest rates.

"Every 10th in the interest rate that we manage to cut means we save 60 million euros per year," he said.

The government forecasts that the debt-to-GDP ratio will drop to 106.1% this year from 112.4% in 2022.

(Reporting by Sergio Goncalves, editing by Ed Osmond)