Mário Centeno

State Budget 2020 rolled out as responsible, sustainable path to secure Portugal’s future

Finance minister Mário Centeno delivered his PS party’s State Budget for 2020 (OE2020) to parliament on Monday night, declaring at a press conference early the next morning that this was the “responsible”, “sustainable” path for Portugal’s future. Almost immediately, political parties across the board were slating it for failing to deliver what the country needs.

In the words of popular TV commentator Marques Mendes, this new budget “lacks ambition”. There are no radical new decisions, no reforms, no sweeping new policies. In short, the government of António Costa is simply delivering ‘more of the same’.

Direct and indirect taxes are increasing – Dinheiro Vivo suggests the budget “reduces and surgically aggravates taxes” all at the same time; public sector workers are to receive minimal pay increases, pensions will go up (but not in any extraordinary way), the minimum wage will rise (but is still one of the lowest in Europe), there are some clear environmental changes ahead, as there are measures to help businesses, both large and small – but none of the potential beneficiaries are throwing their caps in the air.

Unions are threatening industrial action; political parties which now have to analyse the measures appear overwhelmingly unimpressed, and the confederation of businesses (CIP) has said in measured words that it would have preferred “something more ambitious”.

What cannot be denied, however, is that this budget is “historic”, for the simple reason that it is the first in Portugal’s history as a democracy to be working without a deficit.

This does not in any way make up for the fact that Portugal remains one of the most indebted countries in Europe.
It has to be remembered also that this is a budget that has to satisfy the demands of a European Commission that said on the very day Centeno was ‘selling’ next year’s spending plans to the media that it would be keeping Portugal under close watch throughout 2020 due to its “macroeconomic imbalances”.

What are the shocks?
Perhaps the most surprising is a massive taxation increase for ‘Alojamento Local’ – the private holiday lettings sector that this government has in the past been so keen to reel people into.

The measure is focused on properties in historic centres and areas where the market has become saturated, and essentially increases tax by “around 50%”, says ALEP, the association of Alojamento Local in Portugal”.

ALEP president Eduardo Miranda condemns the move for being “disproportionate and very penalising”. This is the third fiscal alteration of the regime in three years, he stressed, and with this new measure, this means taxes on AL have increased by a whopping 300%.

The flip side is the fact that the budget also opens up the possibility for AL proprietors to opt out of the regime without being financially penalised – as long as they then put their properties on the (less lucrative) long-term rentals market.

Shock number two, for communities affected, is the creation of a ‘lithium cluster’.

The threat of lithium exploration in areas of outstanding natural beauty – and even UNESCO world heritage protection – has seen all kinds of civic protests, but the government is clearly intent on pushing forwards, outlining nine areas for exploration (all those that have seen populations in uproar).

The budget stresses that this is all about ‘Green Mining’ which, it says, “gives priority to energetic sustainability and efficiency”.

Public tenders to mining companies will be actively rolled out in 2020, says the document.

Shock number three? Well, considering this is ‘more of the same’, perhaps the only other shock is the fact that every day around €3.5 million more will pour into State coffers than did in 2019.

Where is the money going?
OE2020’s cornerstone has been billed as the creaking SNS health service that has had so much bad press over the last 12 months. Almost a billion euros all told will be ploughed into the health sector, with the promise of hiring almost 8,500 new medical and nursing professionals over the next two years, and the slow phasing-out of ‘taxas moderadoras’ (appointment costs).

Public transport systems and infrastructure projects are to receive a total €1.3 billion – with the emphasis on trying to encourage people not to travel by car.
Services focused on protecting the homeless will be beefed by €7.5 million – with various new ideas already in place, including the creation of an online platform to ‘monitor and accompany homeless people’ and the setting up of new teams of Social Security and other professionals “to have greater proximity to concrete situations”.

Discounts on IRS will target families with very young children (the second and any others have to be under the age of three) and young people who are to benefit from tax exemptions during the first three years of employment.

The PS executive has pushed this last move as a commitment to the country’s youth.

There have also been some clever political measures clearly designed to keep allies on board. For example, IVA applicable to the bullfighting sector has been raised from 6% to 23%. The bullfighting sector has responded in fury; PAN, the Peoples Animals and Nature party, has welcomed the move, but is still on the fence over the content of the budget generally.

Says PAN veteran André Silva: “It’s a budget of continuity. We haven’t decided how we will vote.

“We can perceive that environmental measures are not a priority for the government … just 17% of the Environmental Fund is destined for projects that mean anything: (for instance) the adaptation and mitigation of climate change, refuse disposal, asbestos removal and the circular economy.”

CDS-PP’s Cecília Meireles has been one of the first, however, to categorically condemn the document, saying: “Every time the economy grows, every time anyone works… the State comes and takes the lion’s share.”

Her minority centre-right party has said it will be voting against the budget, as has the newly-elected Iniciativa Liberal – whose only MP Cotrim Figueiredo describes it as “too much State, too little ambition”. With the government’s latest blueprint for the future, it will be “difficult to instil Portuguese society with any energy, will or ambition”, he says.

Now follow the days of what will be seemingly interminable debate as parties try desperately to wrestle some changes.

The timetable involves general debates starting early January, taking measures one by one. It is here proposals for change will be tabled. The ‘final global vote’ should take place early February, meaning the definitive document reaches the President of the Republic for ratification by February 24. Meantime, unknowns persist: which is why the majority of political parties are hedging their bets until they plough through all the relevant pages over their Christmas break.

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