Friday 28 October 2016

Portuguese left vows to reverse tax increases

Barry Hatton

Published 12/11/2015 | 02:30

President Anibal Cavaco Silva will meet labour groups and business leaders over the next few days
President Anibal Cavaco Silva will meet labour groups and business leaders over the next few days

Portugal is facing days of political and economic uncertainty as the eurozone nation waits to hear if the anti- austerity lawmakers who forced the government's resignation will take power - and how they intend to manage the country's fragile public finances.

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President Anibal Cavaco Silva began formal procedures for a change of power by meeting yesterday with the speaker of parliament and outgoing prime minister Pedro Passos Coelho. He will also meet labour groups, business leaders and all political parties in the coming days.

Speaker Eduardo Rodrigues said the political upheaval was "not a positive situation".

The head of state is expected to invite Socialist Party leader Antonio Costa to be prime minister. Costa forged a pact with the Communist Party and radical Left Bloc to bring down the centre-right government after 11 days - the shortest ever Portuguese administration.

Mr Cavaco Silva could also opt to install a caretaker government until a new election.

"Portugal is on hold," said unemployed Magda Rodrigues outside a Lisbon welfare centre. She wants to set up her own business and is hopeful the new government will offer her more tax breaks.

The outgoing government attracted most votes in an October general election when it promised more years of frugality following the debt-heavy country's €78bn bailout in 2011.

But the second-placed Social- ist Party formed an unprecedented leftist alliance to create an outright parliamentary majority that voted against the government's four-year policy proposals on Tuesday, automatically bringing its resignation.

That alliance wants to ease austerity and focus on growth by putting more money in people's pockets. To do that, it has promised to reverse the tax increases and pay and pension cuts introduced after the bailout.

The Socialists say they will abide by eurozone rules on fiscal discipline, but they have yet to explain how they will increase spending without damaging public finances.

Portugal's economy and government finances are still weak. Government debt is at 128pc of GDP - the third-highest in the EU - and the three main ratings agencies still classify Portuguese debt as junk.

"The main challenge for government is how, in the current context of budget orthodoxy, to move quickly in restoring Portuguese buying power," said Antonio Costa Pinto of Lisbon University's Institute of Social Sciences.

Irish Independent

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