The balancing act continues for Portugal’s Socialist minority government.
It has to cut spending to reduce the budget deficit, but also please its more left wing political supporters in parliament by rolling back some of the austerity measures imposed during its international bailout.
The 2017 draft budget, which was presented to parliament on Friday, included a new tax on property holdings worth more than 600,000 euros.
Prime Minister António Costa explained the property tax income would be used to sustain Portugal’s social payments – everything from pensions to the health service to family benefits.
“It is possible and necessary to continue to boost family incomes, through pensions, salaries and taxes,” Costa said. “This is possible without diverging from a sustained consolidation of public finances.”
However the property taxes are exactly the kind of thing that scare away investors according to business leaders.
It will particularly hit Chinese and other non-European investors who have bought homes worth at least 500,000 euros to be eligible for a residence permit under the so-called golden visa programme.
Another money raiser in the budget is a ‘fat tax’ on sugary drinks – which increases according to how sweet they are – with the money raised earmarked for the health service.
Debt and weak growth
Portugal’s government insists it can cut the budget deficit by strictly controlling spending, but its basic problems remain – it is heavily indebted, and the economy is not expanding fast enough.
GDP is forecast to grow by a little over 1 percent this year down from last year’s 1.6 percent.
Many economists say growth in Portugal, which exited its bailout in 2014, is unlikely to rise much above that level in 2017 either.
The country also missed its EU-mandated 2015 fiscal deficit target of 3 percent of gross domestic product, instead posting a gap of 4.4 percent.
Treasury Secretary Joao Galamba has predicted the budget deficit should be cut to just below 2 percent of GDP next year from around 2.5 percent this year.