Fudge-it budget causes uproar

It has been dubbed “an ambush full of tricks and injustices”, “a return to austerity”, “shameful”, “an attempt at illusion”, “far too short-term”, “a budget of the Left” and, in one rarified corner, “timid”. In other words, the State Budget for 2017 has set fur flying and is by no means set in stone. Debates will continue through November, with a final vote only being taken on the 29th. At this point, President Marcelo Rebelo de Sousa will break his silence and reveal what he thinks about what could be dubbed the PS government’s “fudge-it budget”.

First to the bottom line: direct taxes are down, pensions are up, indirect taxes will be hitting us from every direction, but deficit targets have been ‘slashed’.

As the populist press explains, people may find they have more money in monthly pay-packets, but as the days go by they will see this money disappearing fast.

Tobacco, alcohol, fizzy drinks are all going up, along with new levies on the purchase of cars and property – to the point that, in the words of Expresso, “the majority of consumers will suffer a reduction in spending power as the earnings returned to them will not be sufficient to cover the generalised increase in prices of 1.5%”.

The most controversial measures appear to be the massive tax increases in the holiday rentals (Alojamento Local) sector – going from 15% of profits to 35% – and a new so-called IMI rates tax on high-end properties over €600,000.

But while the hullabaloo – coming from right-wing Opposition parties and business leaders, and centering on the fact that these measures will not attract investment – continues through the month, the real test of this budget will come on Friday when ratings agency DBRS is due to deliver its crucial periodic evaluation.

DBRS is the only major agency which rates Portugal’s debt above rubbish-level. It has to be ‘cheered’ by this “fudge-it” budget or technically the country could be pushed towards the much-feared ‘second bailout scenario’.

On Wednesday, however, this was looking less and less like a threat. Analysts were focusing on the finance minister Mário Centeno’s slashing of deficit targets from 2.4% to 1.6% of GDP, along with news that the government is forging ahead with plans for a new bad bank to absorb NPLs (non-performing loans).

This is perhaps where the ‘action’ of the country’s State Budget is focused. Yet, surprisingly, details are still on the light-side.

For example, it is heartening to see the deficit target ‘slashed’ but “is it feasible”, asks Commerzbank strategist David Schnautz. And what is the nitty-gritty of this new bad bank?

According to government spokesman João Galamba, it will be buoyed up by the private sector, without involvement of the government.

“We are working on possible options,” he told respected German business paper Handelsblatt on Monday – but that was about as far as the information went.

Meantime, the decision to pay the new president of State bank Caixa Geral de Depósitos the equivalent of 57 minimum salaries has not exactly played in the government’s favour.

With the PSD Opposition mounting blistering attacks at every opportunity on what it sees as a “return to austerity” in next year’s proposed State Budget, a Socialist government deciding to pay a man who has to oversee the firing of 2,000 staff €423,000 a year somehow seems just a tad too grotesque, even by parliamentary standards.

And the fact that the State Budget’s pension increases do not cover those on the lowest pensions of all (below €275 a month) has also taken further edge off this “fudge-it” budget.

Indeed, former finance minister Maria Luísa Albuquerque dubs it an “instrument of political survival in the solution of the current government”, buoyed as it is by left-wing radicals like Bloco de Esquerda and PCP Communists.

BE, for its part, thinks measures fall far too short of a true budget of the Left. “A budget of the Left would have restructured the debt,” said party coordinator Catarina Martins. “A budget of the Left would have had a stronger strategy for the creation of employment. This is a budget that continues a path that was started to stop the impoverishment and recover earnings, and this we see as positive.”

So, there it is. The fragile alliance of left-wing parties that pundits originally suggested “wouldn’t last the year” has not only done that, it has managed to produce a budget that looks likely to ‘satisfy’ Brussels’ strict deficit rules and regulations, and pass ratings’ agency muster.

Fresh-back from an official visit to China – where he even managed to court interest in the soon-to-be-decommissioned military airbase of Lajes in the Azores – prime minister Costa remains ‘on a roll’.

Said AFP news agency at the weekend: “The Socialists have risen in popularity since they came to power.”

Expresso published a new poll on Friday, suggesting the party is 5.6 percentage points ahead of its PSD Opposition, “its best result since it took office last year”, added AFP.

By NATASHA DONN natasha.donn@algarveresident.com

Photo: Finance minister Mário Centeno (left) delivers the 2017 State Budget proposal to the president of Parliament Ferro Rodrigues on October 14