September 13, 2012 / 10:02 PM / 5 years ago

Portuguese Socialists threaten bailout consensus over tax

LISBON (Reuters) - Anger at tax rises in Portugal gathered steam on Thursday with the main opposition Socialists threatening to end cross-party backing for an EU/IMF bailout by voting against the 2013 draft budget.

The move compounded the government's woes after a poll showed support for the ruling Social Democrats had fallen below the Socialists for the first time since last year's election.

"The government has failed all around and wants to repeat the error next year in a harsher dose," Socialist leader Antonio Jose Seguro said in a televised statement.

"I decided that the party should vote against the budget. We will do everything to stop the government from taking money from workers and giving it to companies," he said.

He said he was still determined to honour Portugal's commitments to its lenders, "but I'll do everything to alleviate the sacrifices of the people, presenting alternative proposals". He added that if the government insists on its plans, his party would field a no-confidence motion.

Last Friday, the government said it planned to raise social security contributions by all workers to 18 percent from 11 percent in 2013 and lower the levy for companies in a move it said was designed to encourage them to hire more.

In a late-night television interview, Prime Minister Pedro Passos Coelho defended the measures as "necessary to fulfill the bailout programme", but said he was ready to discuss adjustments with employers and unions. He also said the government would consider additional spending cuts to alleviate other tax increases stemming from a plan to change existing tax brackets.

Asked whether the government had exceeded the limit with sacrifices asked from the people, he said: "Yes, of course ... but if we fail with the programme sacrifices will be greater."

The premier said he was "surprised by the aggressive tone and the language used by the Socialist leader", but did not make any comment on the threat to the political consensus.

Criticism of the tax hikes from unions and opposition parties grew louder this week after Portugal's lenders, the European Union and IMF, said on Tuesday they had agreed to scale back the country's fiscal goals under the bailout.

The barrage of opposition to government policy raises the stakes in Portugal's effort to ride out its deepest recession since the 1970s and enforce its austerity programme, the price of a 78-billion-euro bailout.

Broad political consensus behind austerity has so far differentiated Portugal from other euro zone strugglers like Greece, the scene of frequent unrest over austerity.

The head of Portugal's biggest employers' group launched strong criticism of the centre-right government's tax plans, saying the "pillar of social stability" had been shaken by the move, even though companies would pay less to social security.

"We have had the three pillars of political stability, of rigorous fulfilment of the (bailout) programme and of social stability," Antonio Saraiva, head of Portugal's industry confederation, told journalists.

"This pillar of social stability has been attacked with these measures," he said.

The Socialist party chief met President Anibal Cavaco Silva earlier on Thursday to discuss the issue. Although the president's role is largely ceremonial, he can veto bills including the budget and also act as mediator between the government and opposition.

Meanwhile, an opinion poll by Aximage pollsters showed support for the Social Democrats had fallen to 33.3 percent in September from 35.0 percent in July. Backing for the centre-left Socialists rose to 35.4 percent from 30.8 percent.

Prime Minister Pedro Passos Coelho's Social Democrats, who rule in coalition with the smaller rightist CDS-PP, have suffered a fall in support since the recession deepened this year under the weight of austerity.

Support for the CDS-PP declined to 7.1 percent from 7.9 percent, the poll showed.

The survey of 600 people took place between September 3 and 6, before the government announced the new tax hikes for 2013. The poll had a margin of error of 4 percentage points.

The ruling coalition has a firm majority in parliament after winning elections in June 2011, and general elections are not due for three years. But there will be regional elections in the Azores this year and a round of municipal elections in 2013.

Additional reporting by Sergio Goncalves and Daniel Alvarenga; Editing by Andrew Roche

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