LISBON Portugal's president on Friday vetoed a government decree that would have given the tax service information on all bank accounts holding more than 50,000 euros (£43,253), citing its likely harmful impact on a weak banking system and economic recovery.
In a statement, the centrist President Marcelo Rebelo de Sousa, who has so far had a good working relationship with the left-leaning Socialist government since taking office in March, said the bill was "politically inopportune".
As part of its fight on tax evasion, the government wanted banks to lift their secrecy rules and automatically feed information on accounts with combined balances of over 50,000 per taxpayer to the tax authorities.
"We live at a time when two crucial, intertwined problems dominate the national financial and economic scene. One is a very sensitive ongoing consolidation of the banking system," said the statement, explaining the rejection of the decree.
"The other is that of confidence of the Portuguese, depositors, savers, investors, which is essential to crank up investment without which there will be no growth, jobs or a sustained financial stability."
The government had no immediate comment.
Various tax and banking experts have warned the law could cause an outflow of deposits from Portuguese banks, making it more damaging than beneficial to the economy in general.
Portugal is still reeling from two costly bank rescues in 2014 and 2015 that undermined investor confidence in its institutions and inflated the budget deficit to make it overshoot Lisbon's European targets.
Also, economic growth has slowed down in the first half of the year from 2015 levels, which was only the second year of timid expansion after Portugal's worst recession in decades and a 2011-14 international bailout.
The president said the proposed law went too far by allowing access to all accounts above 50,000 euros rather than only those that were suspected of tax evasion. He said the tax service already had an ample arsenal of instruments to act against suspected tax dodgers.
Rebelo de Sousa pointed out that this overreach had already been questioned by the National Commission for Data Protection, which suggested it could be unconstitutional.
The president also said the decree did not fully correspond to Portugal's European and international commitments on tax compliance, especially in what concerns foreign citizens resident in Portugal and Portuguese living abroad.
(Reporting by Andrei Khalip; Editing by Alison Williams)