Portugal's new budget passes first hurdle

Portugal's new budget passes first hurdle
By Euronews
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Portugal’s parliament has passed the country’s largest tax hike package in decades.

The changes form part of Prime Minister Pedro Passos Coelho’s new 2013 budget programme.

In the face of rising political tensions and anti-austerity protests, Portugal is scrambling to meet its targets under a 78 billion euro bailout agreement with the European Union and International Monetary Fund.

Coelho must now wait to see if his coalition government’s latest 2013 budget plans will be challenged by the constitutional court, which has already thrown out previous measures this year.

Euronews spoke with Pedro Santos Guerreiro, the editor of the economic newspaper Jornal de Negócios in Lisbon to discuss the impact of the budget.

euronews: “What will be the effects of this budget on the everyday life of the Portuguese people?”

Pedro Santos Guerreiro: “It means more austerity, on top of what we have already had in the last few years.

“The greatest impact this budget will have on the everyday life of the people will be a significant reduction in their income. This is firstly because of a huge increase in taxes, as the finance minister said. This rise is mainly in income tax.

“Besides this direct rise in income tax, deductions will be cut and other taxes will also go up.

“So, the tax burden which people will face next year is simply hellish, especially for those who are in work and for those who own property.

“In addition there will also be significant cuts in pensions and we foresee a rise in unemployment. So, the biggest fear for next year – with the salary cuts and a fall in purchasing power – is that there might be an even bigger than forecast recession, so Portugal could fall into a downward spiral of recession.”

euronews: “The Finance Minister, Vítor Gaspar, has repeated that there’s no other possible alternative. Do you agree that there is no other way?”

Pedro Santos Guerreiro: “The only alternative would be cutting public spending even more. It’s true the Portuguese government could have done more in this area over the past year, which would have allowed for a smaller tax increase, but in October 2012 there were no other alternatives, because what the Troika is asking for, in terms of budget deficit reduction, is just brutal and there’s no way out of that. The Troika itself is imposing conditions that determine Portugal’s budget policies.”

euronews: “When in Europe, particularly Brussels, we talk about the southern countries suffering from the crisis, Greece and Spain are automatically mentioned. Why isn’t the crisis in Portugal and the suffering of the Portuguese people getting the same level of attention as other countries?

Pedro Santos Guerreiro: “Well, it’s because Portugal is a “good pupil” and that’s the paradox. The Portuguese government has put in place all – and I mean ALL – the measures imposed by the Troika without any protests. During the first year, the Portuguese tolerated those measures, accepted them, although there were some protests, but they accepted them.

“The paradox is that, even as they’re doing everything that has been imposed, it’s not working. Things are not out of control, but we’re not hitting the targets that have been set.

“From the outside, the view of Portugal is that it is a country that meets its obligations, and that’s true, Portugal has been respecting the austerity measures and doing everything the Troika imposed to allow it to return to borrowing on the international markets next year.

“Despite all that, it seems to me that it’s obvious the Troika has to recognise they need to change their policies towards Portugal.

euronews: “Do you believe Portugal can escape this downward spiralling crisis without a new bailout?”

Pedro Santos Guerreiro: “It is possible, but the deadlines will have to be relaxed. The (Troika’s) programme, as it is now, makes it difficult for Portugal to meet the budget deficit reduction targets set for next year, mainly because the recession will probably be worse next year.

“If there is no change in the programme, we might reach a situation where we’ll be totally unable to meet the objectives.

“That would be a double mistake, because Portugal is making a great effort in terms of convergence and consolidation, which can’t be ignored either by the Portuguese, or by the Europeans.”

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