Analysis. The proposed funding bill for 2017 includes pension increases, tax increases and more aid for health and schools.

Portuguese budget restores the meaning of ‘left’ in Europe

The government led by socialist António Costa and supported in parliament by the radical Left Bloco de Esquerda (BE) and Partido Comunista Português (PCP) presented the 2017 budget law Friday night (Orçamento do Estado – 2017 OE). We are only at the beginning of an obstacle-strewn path, and yet, in spite of everything and contrary to all predictions, the majority continues to hold.

Portugal’s government is now probably one of the few in Europe to give a practical meaning to the concept of the left. And what does it mean to implement left policies? Well, it started by increasing pensions. For those receiving up to €838, there will be an adjustment based on inflation. For those under the threshold of €638, the increase will be €10. For sure, it is not much, but it’s still a figure above inflation, for a total of €120 per year.

Other income support measures will be implemented through a series of indirect measures such as increasing investments in health by 3.7 percent, education (for example, with free elementary school textbooks) and an increase in unemployment benefits. In addition, the IRS (personal income tax) surcharge introduced during the Troika years will be abolished. Its rates range from 1-3 percent.

The room for maneuvering is obviously very narrow, and in spite of the term “radical,” the socialist allies are showing enormous pragmatic and mediation skills. The criteria imposed by the European treaties should be respected; unfortunately we are not faced with a case of insubordination, but with the concrete demonstration that the austerity burdens can be redistributed in different forms. There is nothing revolutionary about it.

However, with an increase in GDP of 1.5 percent, the estimated deficit for next year will be around 1.7-1.8 percent. This means that, in view of higher outputs, revenues must increase.

The OE 2017 includes a new tax on real estate, a mini-property tax that will affect those properties above €600,000, with a 0.3 percent charge. The proceeds from this tax are estimated at around €170 million. To finance the increased expenditure, certain rates of consumer non-necessities were increased: excises on alcohol (3 percent increase), tobacco, cars and beverages (on the latter, the rate will vary depending on the sugar content).

There will also be a tightening of the tax on the so-called “alojamento local” or on houses for rent for short periods, such as Airnbnb dwellings, which will go from 15 percent to 35 percent.

After its submission to the Assembly of the Republic, the 2017 OE began its journey. It will last several weeks, and many things could still happen. At the moment the biggest unknown is the evaluation of the DBRS rating company that — in the event of a downgrade — could lead to a request for a second bailout. If that happens, we’ll see what considerations will come from the Commission and, in case of requests for changes, how the coalition parties will react.

Obviously, the impact of OE 2017 on public opinion cannot be determined yet, but polls show that month after month, the support to the majority parties grows: Partido Socialista gained 0.3 (at its highest level), BE added 0.6 and PCP gained 0.2 (Eurosondagem for the weekly Expresso). That’s an important sign because it shows that the act of governing does not necessarily cause a loss of consensus.

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