LISBON (Reuters) – Portugal’s leftist-dominated parliament approved in the first reading the minority Socialist government’s 2016 budget, which envisages an EU-imposed cut in the deficit through higher indirect taxes, while easing austerity for households.
The budget was passed by 122-107 votes in the 230-seat parliament. The government’s allies – Left Bloc and the Communists – backed the bill despite concessions Lisbon had to make after pressure from Brussels for a bigger reduction of the deficit in a country with one of Europe’s heaviest debt burdens.
The centre-right Social Democrats and the rightist CDS-PP party, whose coalition government was ousted in November by the centre-left Socialists and their far left allies, voted against. The previous government imposed tough austerity to meet the terms of an international bailout for Portugal in 2011-2014.
The budget bill, which has been delayed by an inconclusive general election last October, now goes to committees for in-detail discussions and possible changes, with the final vote scheduled for March 16.
The budget promises to cut the deficit to 2.2 percent of gross domestic product from 2015’s 4.3 percent, which included a one-off bank rescue. It projects a slight pickup in economic growth to 1.8 percent from 1.5 percent last year.
The government had initially proposed a cut to 2.6 percent, but Brussels threatened to reject the plan and insisted on a tighter budget, forcing the administration to adopt a set of measures – mainly indirect tax hikes – worth 900 million euros (£706.7 million).
The European Commission has warned that even after those changes the budget was at risk of breaching its fiscal rules and told Lisbon to stand by with new measures if need be.
During Tuesday’s budget debate, Finance Minister Mario Centeno said contingency measures would be prepared, but they would not entail wage cuts or income tax hikes in order to meet the government’s commitments with their allies in parliament.
“Nobody says that they will have to be carried out… Turning the page on austerity does not mean ruling without rigour. This budget promotes economic and social stability, generating confidence,” he said, pointing to a growth-friendly 3.6 percent increase in disposable income.
The government has already reversed salary and pension cuts for the public sector, raised the minimum wage and reintroduced public holidays scrapped during the bailout.
(Reporting By Andrei Khalip, editing by Axel Bugge)