Portugal PM faces battle over austerity budget

LISBON Tue Oct 16, 2012 3:53pm BST

1 of 7. A man protests against the new 2013 state budget in front of the parliament as a fire burns in front of it in Lisbon October 15, 2012.

Credit: Reuters/Jose Manuel Ribeiro

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LISBON (Reuters) - Portuguese politicians from the right to the left attacked the scale of austerity measures in the government's 2013 draft budget on Tuesday, suggesting the prime minister could face a battle to force it through parliament in its current form.

The centre-right coalition government presented the document on Monday. It included the largest rise in the tax burden in Portugal's democratic history, to ensure tough budget goals are met under a 78-billion-euro bailout at a time of deep recession.

The opposition Socialists said the budget was a "fiscal nuclear bomb" and pledged to oppose the document when parliament voted on it at the end of the month.

But in a more worrying sign for Prime Minister Pedro Passos Coelho, voices of dissent rose from within the coalition parties on Tuesday, a day after 2,000 anti-austerity protesters held a rally outside parliament to demand the government resign.

"I consider the (budget) objective absolutely unreachable," said Manuela Ferreira Leite, a former head of the ruling centre-right Social Democrats and ex-finance minister, who is not a member of the government.

"It is not viable from a point of view of the budget managing to achieve a consolidation of the size that is necessary in such a small time," she said.

The budget aims to cut the fiscal deficit to 4.5 percent of gross domestic product next year from 5 percent this year, but those targets were relaxed by Portugal's lenders last month on signs the previous goals would not be met. It promises to push unemployment, currently at around 16 percent, further into record territory.

A big challenge for Passos Coelho is to ensure the small, rightist CDS party, which guarantees his government's majority in parliament, remains loyal despite its traditional opposition to higher taxes. Two lawmakers from the party expressed doubts on Tuesday.

"Parliament has the leeway to change any budget," CDS lawmaker Joao Pinho de Almeida wrote on his Facebook page. "To deny that is to deny the fundamentals of parliamentarianism and the democratic system."

He was reacting to comments by Finance Minister Vitor Gaspar, who said the margin for manoeuvre on the budget was "non-existent" when he presented it on Monday.

Another CDS lawmaker, Adolfo Mesquita Nunes, wrote on his Facebook page: "Don't expect me to accept that this budget, as is, cannot be changed. And I will have the chance to tell the finance minister that directly."

Lawmakers from the party, whose leader Paulo Portas is foreign minister, met Monday night to discuss the budget but made no statement afterwards. They met Gaspar on Tuesday.

So far, the government has said the budget cannot be changed but the CDS has said it wants more spending cuts and fewer tax hikes.

Weekly Expresso reported on its website that the party even considered walking out of government, but most its senior figures agreed that a political crisis would pose too many risks with consequences that are hard to fathom.

Last year Portugal reduced its deficit mostly thanks to a one-off transfer of bank pension assets to state coffers.

(Additional reporting by Daniel Alvarenga; Editing by Pravin Char)

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