In austerity-scarred Portugal, fiscal discipline is a vote winner

Portugal's Prime Minister and Socialist Party (PS) candidate Antonio Costa attends an electoral campaign rally in Lisbon, Portugal September 24, 2019. Picture taken September 24, 2019. REUTERS/Rafael Marchante

Portugal’s Socialist Prime Minister Antonio Costa aims to retain power at Sunday’s parliamentary election with a pledge that looks like an unlikely vote-winner for western Europe’s poorest country – no backtracking on tight spending controls.

As populist governments across the rest of Europe look to ramp up spending amid fears of recession, Costa has campaigned for fiscal discipline to preserve the hard-won results of austerity imposed in the wake of Portugal’s 2011 debt crisis.

And the strategy appears to be working. The centre-left Socialists are well ahead in opinion polls after recording the lowest budget deficit in the 45 years of Portugal’s democratic history. And the economy is on course to grow 1.9% this year, above the EU average.

“Perhaps it’s best for the austerity not to end completely, or we run the risk of going overboard as happened before the crisis,” said Nuno Almeida, 31, a karate teacher in the town of Barreiro, south of Lisbon.

Almeida, who has a second job in a publishing house, said he plans to vote for the Socialists because they “balance out discipline and progress”.

“People don’t want to go through the suffering again and are now much more lucid about deficits and the budget,” said Almeida, whose livelihood was hit when he lost many of his fee-paying pupils during the 2011-14 crisis.

While Costa’s government declared in 2016 that it had “turned the page on austerity” by reversing some pay cuts and tax hikes imposed by the previous administration, it has since become more frugal. It has refused to raise salaries for teachers and civil servants, while the total tax burden reached a record high 35.4% of GDP in 2018.

Even with wages largely stuck at pre-crisis levels of almost a decade ago, ordinary people say they have felt improvements lately.

“During the crisis, a lot was taken from us,” said Pedro Campos, a tram driver on Lisbon’s Route 28 which is popular with tourists. “Our wage returned to what it was before the crisis … I believe the country will continue to evolve.”

Tourism is Portugal’s major source of revenue and has helped its recovery.

Portugal’s Prime Minister and Socialist Party (PS) candidate Antonio Costa hugs with his Finance minister Mario Centeno during an electoral campaign rally in Lisbon, Portugal September 24, 2019. Picture taken September 24, 2019. REUTERS/Rafael Marchante

Finance minister Mario Centeno, who is also chairman of the Eurogroup of euro zone finance ministers, now promises a small budget surplus next year, but so does the main opposition centre-right party PSD, which could make potential post-election agreements easier. The Socialists are still unlikely to win an outright majority but are expected to increase their number of seats in parliament.

In a sign that Centeno’s tenure has become a standard for sound fiscal and economic policies, PSD leader Rui Rio told Costa in a recent debate: “I also have my own Mario Centeno”.

Any deviation from the deficit-busting course is politically risky, as Rio knows from the European elections in May, when PSD suffered its worst-ever result, capturing just 22% of the vote.

Just ahead of those elections, Costa had accused PSD of compromising fiscal stability when PSD briefly sided with the far-left in backing a bill that would have raised teachers’ wages. The bill was never approved.

“The big irony of this election … and the big difficulty for the right is that they have lost the banner of budget balance and the Socialists have raised it,” said political analyst Antonio Costa Pinto. “The centre-right and the centre-left appreciate these values, and that’s the bulk of the electorate.”

Even the far-left parties have contributed to the deficit-cutting policies, helping to approve all four annual budgets despite blaming underfunded public healthcare and education on Centeno’s “obsession with the deficit”.

Centeno rejects such claims, arguing that public spending is increasing, if at a pace well below that of revenues, but is disciplined.

“Portugal’s back-and-forth erratic public investment policy is a thing of the past now,” Centeno said this week, as the government now only proceeds with viable investment projects that have guaranteed financing.

In January-August, government spending rose 2.7% from a year earlier while revenues were up 4.6%. And although the government budgeted for a 31% increase in public investment this year to 2.1% of GDP – still one of the lowest levels in the EU – it rose by just 3% in the first seven months.