Late in January, the EC wrote to Portugal requesting it to make revisions to the Socialist minority government’s first budget.
The document, containing a number of EC-imposed alterations, has now been handed over to Brussels who could either approve it or issue a veto. This power is part of new authority Brussels was handed in the wake of the financial crisis and can be applied should it feel a member state’s financial policies could lead to substantial accounting imbalances.
Brussels had, in 2014, issued warnings to France and Italy over the countries’ non-compliance with budgetary rules, but refrained from issuing a veto.
With the EU still struggling with the effects of the global economic slowdown, and confidence in markets still at a premium, observers believe it is unlikely that the EC, led by Jean Claude-Juncker, will reject Portugal’s budget for 2016.
However, neither a green nor a red light is expected from Brussels, with the 2016 budget set to be given the go ahead, but with reservations.
Portugal’s draft budget was approved in Lisbon by the Council of Ministers on Thursday evening, with European Commissioner Margaritis Schinas using his Twitter page earlier that day to write: “Exceptional EU Commission meeting this Friday at 14.00h [1pm Lisbon time] on Opinion on Draft Budgetary Plan of Portugal.”
The Portuguese Government had earlier this week accepted to make some changes to the 2016 budget, but literally decided only to meet Brussels half way.
Concerned that Portugal would breach its budget deficit goals, Brussels had asked Lisbon to come up with 950 million euros in austerity measures to meet its targets.
The Portuguese Finance Ministry under Mário Centeno responded with measures worth an estimated 450 million euros.
According to the revisions, the additional revenue will mostly be generated from taxes.
A fuel tax, which could see the price of petrol rise by as much as 6 cents a litre, a spike on taxes on new cars, raising a surcharge on banks from 0.085 to 0.1 percent along with heftier taxes on tobacco, are among the measures that Lisbon has presented in its bid to appease Brussels.
There were also reports that the Government could propose that the reduction of working weeks for civil servants from 40 to 35 hours be delayed until the end of the year should the EC feel Portugal was still too far off from balancing its books for 2016.
But this would appear to be a last resort, as industrial action was already staged last week following moves by the Government to delay the revision to the civil service timetable until June. The postponement was also frowned upon by the Socialist minority cabinet’s partners on the far left, and any additional setbacks could see the Government’s tenure in office become unsustainable.
A pledge to reduce VAT from 23 to 13 percent at restaurants, has also been delayed, with expectations now that it will only be introduced in late Spring, but in keeping with the Socialist government’s promise that it would reduce VAT “in 2016”.
Meanwhile, and reacting to criticism that the EC was pressing Portugal into a new wave of austerity, Jean-Claude Juncker said on Wednesday that the statements of his officials on the draft state budget for 2016 presented by Portugal’s Government are justified by the fact that member states of the euro zone should keep to the rules laid down by the Stability and Growth Pact.
“Some colleagues said that the European Commission should not deal with national budgets,” Juncker was quoted as saying by the Lusa News Agency in his closing speech at a debate in the European Parliament.
“That’s not true: there’s a treaty, a Pact – recommendations are made country by country, debates in the Eurogroup [eurozone finance ministers] and in the [European] Council, and the commission must play its role.”
Juncker was responding to João Ferreira, European Parliament MEP for Portugal’s Communist Party, who had accused the EC of conducting an unacceptable “blackmail operation” to alter the Portuguese state budget.
The commission president added that “there were enough elements of flexibility of interpretation of the Pact that are sufficient to allow member states – even those that have difficulties – to propose budgets that fulfil all the rules.”
“We don’t have a strict and stupid policy of austerity,” he said.
Portugal’s Prime Minister António Costa responded late Wednesday evening that his cabinet had done all within its powers to compile a budget of note.
“I am not going to predict the outcome of the EC’s evaluation”, he said, before adding that the Government had submitted a rigorous budget.
“The budget is responsible and creates conditions for economic growth, the reduction of our debt and the deficit” and “it complies with all the pledges made to Portuguese, with the parties that support the Government and our obligations with the rules of the euro.”