Thomson Reuters Foundation

Inform - Connect - Empower

FACTBOX-Political risks to watch in Portugal

Source: Thomson Reuters Foundation - Fri, 15 Mar 2013 16:24 GMT
Author: Reuters
Tweet Recommend Google + LinkedIn Email Print
Leave us a comment

LISBON, March 15 (Reuters) - Portugal's lenders have eased the country's fiscal goals under a bailout due to a worsening economic outlook, but a potential court challenge against huge tax increases could derail the government's efforts.

The biggest tax hikes in Portugal's modern history imposed from 2013 has turned the biggest opposition party, the Socialists, against austerity and set off mass protests in a country grappling with its worst recession since the 1970s and record unemployment.

CONSTITUTIONAL COURT

Conservative President Anibal Cavaco Silva has signed the 2013 budget into law, but, facing massive public pressure, asked the Constitutional Court to rule on whether tax hikes included in the budget were fairly distributed and legal.

Opponents, including the main opposition Socialists, filed separate challenges with the court, arguing that cuts to pensions, civil servants' salaries and welfare benefits undermine workers basic rights. The court has been analysing the challenges since early January. 

The court threw out one austerity plan in July 2012 over what it considered unfair wage cuts for civil servants, blowing a hole in the government's austerity plans that were patched up with other unpopular measures.

What to watch:

- Constitutional Court decision

- Government contingency plan in case of unfavourable ruling

PROTESTS, GOVERNMENT WEAKENED

Last September, Prime Minister Pedro Passos Coelho was forced to abandon a plan to raise social security contributions for workers and lower them for employers - a measure that replaced the move banned by the court - after mass protests and opposition from business leaders and politicians.

The income, wealth and property tax hikes imposed to compensate for this move are scarcely more popular - hundreds of thousands marched to demand the government's resignation on March 2 in rallies similar in size to last September's.

Support for the ruling centre-right coalition in opinion polls is around record lows, but it commands a comfortable majority in parliament and the chances of a political crisis are small. Still, a poor showing in local elections in October could raise questions whether Portuguese still back the government.

What to watch:

- Further protests, including by disgruntled military on March 20, March 27 youth protest in Lisbon

- Strikes, including at TAP airline on March 21-23

- Opinion polls and local elections in October.

GOVERNMENT'S SPENDING REFORM

The lenders have given Lisbon an extra year to cut its budget deficit and to perform spending cuts worth around 4 billion euros that are now spread over three years and not two.

Still, such permanent, structural cuts require a deep reform of state spending and impact the welfare state, which the government says is unsustainable in its current form. Cutting spending on basic services like healthcare could stir more court challenges, including in the constitutional court, and protests.

What to watch:

- Cuts to be specified in budget strategy guidelines in April and reaction to them.

(Reporting by Andrei Khalip; Editing by Alison Williams)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of the Thomson Reuters Foundation. For more information see our Acceptable Use Policy.

comments powered by Disqus
Most Popular
LATEST SLIDESHOW

Latest slideshow

See allSee all
FEATURED JOBS
Featured jobs