Privatization plans, further tax increases and changes to pension policies are emerging as early sticking points as Portugal's government and opposition parties try to carve out a common position for bailout talks with the European Union. A delegation from the European Commission, the European Central Bank and the International Monetary Fund arrived in Lisbon Tuesday to assess Portugal's economic situation as part of negotiations that will begin next week to iron out the terms of an estimated €80 billion bailout package. Talks with European authorities and the IMF over bailout terms are expected to extend to mid-May. The country is in a hurry to get €10 billion by June, partly to pay €4.9 billion in debt coming due. But negotiations are expected to be difficult, since Portugal is currently being governed by a caretaker government with limited powers following Prime Minister José Sócrates's decision to submit his resignation last month. EU finance ministers have called upon Portugal's various political parties to build a consensus to ensure that the next government will stick to the terms of the bailout following general elections that Portugal has set for June 5. However, party members say political rivalry ahead of the elections could derail talks and may force the EU into the unusual role of pacifier. "While the normal situation would be for the government to face the EU and the IMF and try to get the best deal for the country, in Portugal's case, the government also has to face the opposition in setting key measures," said a lawmaker belonging to the prime minister's Socialist Party. "Portugal's political situation is dramatic."
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Wednesday, April 13, 2011
Privatization plans, further tax increases and changes to pension policies are emerging as early sticking points as Portugal's government and opposition parties try to carve out a common position for bailout talks with the European Union. A delegation from the European Commission, the European Central Bank and the International Monetary Fund arrived in Lisbon Tuesday to assess Portugal's economic situation as part of negotiations that will begin next week to iron out the terms of an estimated €80 billion bailout package. Talks with European authorities and the IMF over bailout terms are expected to extend to mid-May. The country is in a hurry to get €10 billion by June, partly to pay €4.9 billion in debt coming due. But negotiations are expected to be difficult, since Portugal is currently being governed by a caretaker government with limited powers following Prime Minister José Sócrates's decision to submit his resignation last month. EU finance ministers have called upon Portugal's various political parties to build a consensus to ensure that the next government will stick to the terms of the bailout following general elections that Portugal has set for June 5. However, party members say political rivalry ahead of the elections could derail talks and may force the EU into the unusual role of pacifier. "While the normal situation would be for the government to face the EU and the IMF and try to get the best deal for the country, in Portugal's case, the government also has to face the opposition in setting key measures," said a lawmaker belonging to the prime minister's Socialist Party. "Portugal's political situation is dramatic."
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On top of a wide budget deficit, Portugal is also facing economic stagnation. Unemployment has increased, and is now above 11%, one of the highest in Europe.
Portugal's main challenge will be to impose harsh austerity measures while trying to find ways to kick-start growth, which has averaged 1% per year over the past decade.
To boost tax revenue, Mr. Sócrates's government wants to reduce tax deductions for high earners.
Mr. Passos Coelho, in turn, prefers to raise value-added taxes before changing income taxes.
"It is important to focus on taxes related to consumption, since citizens have the power to decide how much they want to spend, and therefore pay in taxes," he said in a recent interview.
Contention between the leaders is particularly high on pension plans.
Mr. Sócrates has vowed to set a tax of up to 10% on pensions above €1,500 a month. The measure was included in the austerity package rejected by parliament last month.
Mr. Passos Coelho has said making changes to such low pensions "is out of question."
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