The document was approved with votes in favour by the minority Socialist government and the two far left parties, along with the Greens.
The Social Democrats and the People’s Party, who previously formed the coalition government, voted against. The leftist government, which will have to present its 2017 budget by October, indicated talks would start shortly with its partners to ensure next year’s budget is also met with the majority’s approval.
The budget was approved hours after it emerged that there had been a wide range of differing opinions at the extraordinary European Commission meeting earlier this month.
The meeting had been called to consider the Portuguese 2016 state budget, with some advocating its rejection, according to the minutes of the meeting released on Tuesday morning.
While the 5 February extraordinary meeting did see Brussels give the green light to the budget, the minutes state that at the weekly meeting held on 2 February, when the Portuguese budget was part of the agenda, “some members spoke in favour of rejection” of the draft document and others in favour of acceptance.
European Commission Vice-President responsible for the Euro, Valdis Dombrovskis, told the second meeting that according to the rules and regulations stipulated by the Growth and Stability Pact and the legislation on budgetary policy coordination, the Commission was within its powers to request Portugal to submit another budget given that “the technical analysis of the initial draft identified particularly serious non-compliance with budgetary policy obligations,” the minutes stated.
However, the cost-saving measures presented by the Portuguese government, accounting for a total value of 845 million euros, representing between 0.1 percent and 0.2 percent of GDP, staved off that prospect.
Nevertheless, the minutes show that both Dombrovskis and fellow Commissioner for Economic Affairs Pierre Moscovici, who were both mandated to negotiate with the Portuguese authorities, highlighted how the Commission’s budget approval needed to be accompanied by clear warnings as to the risks inherent to the state budget and the scope for future sanctions in the case of non-compliance with the rules.
In turn, Commission President, Jean-Claude Juncker said that “the decision taken was not of a political nature given that the rules had been fully respected and the numbers carefully verified.”
The Portuguese government did gain approval at the respective meeting, but with responsibility for drafting additional budgetary contention measures for implementation over the course of the year should the circumstances require them.
Speaking at the parliamentary debate this week prior to the budget’s approval, Prime Minister António Costa said it was the first time in many years, that a budget was not hiking VAT or taxes.
Costa said that his government had also headed in the opposite direction and reduced taxes because “as promised, the IRS surcharge is totally or partially eliminated and the VAT rate reduced for restaurants.”
“The Portuguese are going to pay fewer taxes this year than they did last year,” said Costa describing the taxation proposals as involving “the redistribution of fiscal efforts in a fairer fashion.”
There was also no regret over the raising of indirect taxes, in particular those on tobacco, fuel duties, vehicle purchases and the contracting of credits and loans.
“This is a fairer option from the fiscal point of view and coherent with the promotion of healthcare and environmental sustainability and acting as a disincentive to imports and indebtedness,” said Costa.
The prime minister also used his parliamentary address to tout the measures he said his government had taken in order to boost economic growth and exemplified through reference to the return of the Simplex government reform programme, setting up a company capitalisation unit and Plan 100 to accelerate the awarding of European Union funding that Costa said had fast-tracked €80 million to companies in his first 80 days in office.
But the centre-right was less than convinced, as the Socialist budget came in for strong criticism with Luís Montenegro, the Social Democratic Parliamentary chief-whip, leading the way.
“This is a bad state budget, bad from the technical point of view, bad from the political point of view and bad from the social point of view,” said Montenegro before describing its drafting as if it was “a pamphlet of political propaganda” in reference to the government’s negotiations with primarily the Left Bloc and the Communist Party that secure the government’s majority.
“From an erratic government, we have a budget strewn with errors” said the party parliamentary president, before describing the decision to return civil service salary cuts as “imprudent” and the budget itself as “bipolar as it was already everything and its contrary.”
This criticism was preceded last week by comments from former Portuguese Finance Minister João Salgueiro who said that another bailout of the country “could be inevitable”, while university professor João César das Neves claimed the 2016 budget put the country on the verge of another bailout.
The two economists made these remarks while speaking at the opposition PSD party parliamentary meeting in Santarém.
João Salgueiro said a profound change was approaching Portugal and that people were starting to think that a fourth bailout “may be inevitable”.
During a debate with MPs, César das Neves added that this scenario was almost a certainty: “We are at the edge of another bailout in Portugal, and certainly a much huger crisis than that. Europe is very fragile so we are just months away from seeing very serious matters.”
But the Socialist government has remained confident in its policies, forecasting that boosting public spending and restricting austerity would eventually translate into prosperity for Portugal.