Prime Minister eyes post-Troika era

By INÊS LOPES ines.lopes@algarveresident.com

Prime Minister Pedro Passos Coelho believes it is time to start thinking about Portugal post-Troika, find alternatives to the excessive tax burden and improve investor confidence in the country. “Persistent attempts by the opposition to begin a political crisis do nothing to help our cause,” he said.

Speaking during the 29th Regional Congress for the PSD/Azores in Ponta Delgada last week, Passos Coelho said: “By June 2014, we will have fulfilled the requirements under the Memorandum of Understanding. We will no longer need the Troika here, nor will we need the Troika’s money.”

For these reasons, the Prime Minister believes it is necessary to challenge all political forces to get involved in the effort to find viable solutions for a country that is submerged in taxes and with little hope for the future.

“If anyone thinks they can be in a position of responsibility without communicating with the country how they are going to lead it forward and resolve problems, but instead allow people discontent to persist, then they will never gain their trust,” he said.

For Passos Coelho, Portugal needs to start preparing for the post-Troika era “now” – “this cannot be left until 2014” – and part of this work is to talk to the people about the future and how this can lead to investor confidence being restored.

“This is what member states in the European Union want to see; investors, the ratings agencies and the Portuguese need to know what they can expect in the future,” he said.

Stressing that it is no longer viable to look at the State in a “passive way”, Passos Coelho said that for Portugal to stand on its own feet in future, without the Troika, the need for financial bailouts and without heavy taxation, it is important that reform measures are implemented with active involvement of everyone.

On Tuesday and Wednesday this week, a debate on the State Reform, with limited coverage by the media and by invitation only, was held in Lisbon, led by the Prime Minister. Entitled ‘Thinking about the Future – a State for the Society’, the discussion, involving various figures from the political, economic and social scenes, was prompted by the controversial International Monetary Fund (IMF) report providing guidelines to assist Portugal in its Herculean effort to reduce public expenditure by €4 billion as of 2014 (see other story on this page).

There is no alternative: ‘We either have more taxes or reduce public spending’

The Prime Minister believes its government can implement the reforms, but an important decision needs to be made by everyone – political parties, social partners and citizens – as there is no alternative in the current state of things.

“We know that in the next few years we will need to pay off our debt, so where will we find the money to pay for education, healthcare, salaries, social security and so on? “There are only two options: we either spend less or keep taxes at high levels. There is no alternative. People have to say what they want,” said the Portuguese PM during the Azores PSD conference.

“I want taxes to be reduced as soon as possible, so the economy can breathe, more savings can be made, investment can be financed, companies can be recapitalised and more employment can become a reality,” he said, challenging those opposing his government – particularly the Socialist party (PS) – to find other solutions to the country’s problems.

“Our taxes are some of the highest in Europe and just to service our debt costs more than it does for other more important areas, such as healthcare, education and social security.

“Those who believe they can take advantage of this difficult situation by pushing the country toward a political crisis and anticipated elections to place them in power, surely are aware that the problem will persist with this or any another government,” he said.

Referring to the controversial IMF report, Passos Coelho reiterated that the document is not a “Bible” for the government, but added that its content could not be ignored.

“We may disagree with the solutions being proposed but not the problems that have been identified. And we will always have to find solutions for these problems one way or another,” he said, adding that this is the way to gain investor confidence.

IMF report attacks Portugal’s oversized public sector

Recommendations||Opinions about an 80-page report from the International Monetary Fund (IMF), proposing an array of options to help the Portuguese government cut €4 billion on public spending as of 2014 have been many and varied.

As reported by the Algarve Resident last week, the IMF’s suggestions included job cuts in the public sector by up to 20% (representing savings of just under €3 billion alone), slashing public-sector wages across the board by between 3% and 7% (representing savings of around €760 million) and cuts of 30% on workers’ allowances which would save the government an additional €300 million.

According to the IMF, pensions should also be lowered, working hours increased, healthcare fees inflated, thousands of teachers should be laid off (around 14,000) or put on mobility programmes (between 30,000 and 50,000) and police numbers reduced.

The document also mentioned that there are professions, such as the police, army, teachers, doctors and judges, who are “over-privileged”.

Political opposition members were outraged at the report describing it as “irresponsible” and “soulless”, while the Prime Minister, to put minds at rest, said it was not a binding report and that its proposals would be carefully studied before any implementation.

Major trade union federations, teacher associations, the Armed Forces and healthcare commissions have slammed the “ruthless” measures and vowed to take the fight to the streets.

The report has been heavily criticised as “another blow to social and political consensus”.

Social security at risk

Speaking to TSF radio station on the State Reform, three former social security ministers advised the government to “stop and think”, initiate a national debate and then negotiate with the Troika.

Sharing the same opinion, Bagão Félix, Vieira da Silva and Silva Peneda all think the IMF report is “soulless”.

They highlighted that the social security system is something the Portuguese should be proud of, as it has been thought out and planned over the last few decades, but warned that the system is at risk if the IMF suggestions are followed.

Bagão Félix said politicians were making a “big mistake” for wanting a reform of the State “yesterday” while the IMF was making another mistake for preparing a report that clearly shows lack of knowledge of the history of the country. “It’s a soulless report,” he said.

For Silva Peneda there is another disturbing aspect in the document. No thought has been given to the social impact that the document proposals would have if enforced.

They believe the government needs to ensure the sustainability of the social security system, as it was doubtful that it would be able to assist with even the most basic welfare needs of citizens, let alone a life-time project.

The report said Portugal had “expensive pensions” and several options were proposed, such as maintaining a cut on holiday bonuses, as well as 15% cuts on pensions above a non-specified amount. The government could also change the way pensions were calculated, amounting to a 20% cut on every pension. Retirement age should also be increased to 66.

Healthcare waste

Minister of Health Paulo Macedo said there are aspects within the IMF document that deserve to be analysed and debated and others that will not be implemented. The minister refrained from revealing the percentage of financial cuts to the health sector, as part of the State Reform, which is now under discussion. However, proposals have been made to increase healthcare fees, particularly for “non-essential” services, as well as changing the exemptions’ regime in place.

Paulo Macedo assured that the Portuguese could rely on accessible, quality healthcare, but with spending limitations, as it is necessary to cut waste, maximise on investments made and “do more with existing resources”.

He referred to the “disproportionate” investment in the new Paediatric Hospital of Coimbra, which is being under-used with several wards still closed.

“The healthcare sector needs to be sustainable now and in the future,” said Paulo Macedo.

Speaking about the shortage of medicines to treat certain illnesses, the minister said harmonisation between regions and hospitals was needed to ensure the drugs are available.

Police force cutbacks

Downsizing police forces was another recommendation of the IMF which is causing widespread criticism.

The international body believes that by reducing the number of police officers (one of the densest in Europe) and changing their profession’s privileges, the government will be more successful in its efforts to reduce public spending.

Minister for Home Affairs Miguel Macedo hopes the discussion will be “serene and intelligent”, which does not mean that all the proposals should be implemented.

Speaking to the press during the inauguration of the new Santo Tirso Voluntary Firefighters Headquarters last week, the minister said he would not comment on the report’s proposals but admitted a set of alterations to internal security was being drafted.

“I don’t wish to comment on the report. It has been prepared so that a discussion can take place. It is vital to reflect on existing problems and that viable solutions can be found,” he said.

“These are sensitive issues that need to be adjusted to our current situation. But we have to prevent both unnecessary redundancies and waste,” said the minister.

More financial assistance

The Troika (European Central Bank, the International Monetary Fund and the European Commission) has confirmed that Portugal would be receiving an additional €3 billion to €4 billion in bailout funds. This is due to currency fluctuations and alterations to the loan regulations within the European Financial Stability Facility (EFSF), which means Portugal will be receiving in total between €81 billion and €82 billion.

It is expected that the extra financial assistance will provide the country with a bit more room to manoeuvre on its austerity measures.
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