Portugal's parliament rejects budget; snap election looms in 2022

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Portugal's parliament rejects budget; snap election looms in 2022
© Reuters/PEDRO NUNES Portugal’s PM Costa gestures at the end of the debate on the 2022 state budget draft in first reading at the Portuguese Parliament in Lisbon

By Sergio Goncalves and Andrei Khalip

LISBON (Reuters) – Portugal’s parliament threw out the minority Socialist government’s 2022 budget bill on Wednesday, paving the way for snap elections and ending six years of relative political stability under Prime Minister Antonio Costa.

Portugal's parliament rejects budget; snap election looms in 2022
© Reuters/PEDRO NUNES Portugal’s Prime Minister Antonio Costa speaks during the debate on the 2022 state budget draft in first reading at the Portuguese Parliament in Lisbon

Costa’s hard-left former allies sided with the conservatives to defeat the bill that envisaged income tax cuts for the middle class and increased public investment to spur the post-pandemic recovery, while cutting the deficit to 3.2% of gross domestic product from 4.3% in 2021.

Portugal's parliament rejects budget; snap election looms in 2022
© Reuters/PEDRO NUNES Parliament members vote on the 2022 state budget draft in first reading at the Portuguese Parliament in Lisbon

The Communists and Left Bloc said Costa had ignored their demands for more protections for workers, improvements in the social security system and more public investment in the health service as he was too focused on deficit cuts.

Costa argued he could not risk damaging hard-earned international credibility in a country with one of the heaviest public debt burdens in Europe and which was subject to painful austerity from 2011 to 2014 under an international bailout.

While the rejection of a budget does not necessarily imply snap elections, President Marcelo Rebelo de Sousa warned on Monday that he would have no option but to dissolve parliament and hold elections two years ahead of schedule.

That entails a process of consultations with the main political parties, Costa and the president’s Council of State that could take several weeks, with no deadline to finalise them, nor for the president to sign the dissolution decree.

Ferro Rodrigues, the parliament’s speaker, consulted representatives of most parties on Tuesday at the president’s request, and the two hard-left parties suggested that an alternative to the dissolution would be for the government come up with a new budget proposal, Expresso newspaper said.

Costa, who has ruled out resigning, could in theory still present a new budget bill, although he has also said he is ready to lead his party in any election campaign.

If and when the president publishes the dissolution decree, elections must be held within 60 days.

He has indicated initially the ballot could occur in late January or early February, or possibly even later to give time for the main opposition Social Democrats to hold an internal leadership vote in December and a congress in mid-January.

But analysts say an election alone will not solve the governability impasse, which could be exacerbated by the far-right party Chega’s potential emergence as the third-largest force in parliament, as opinion polls suggest.

“What comes next will be an even more unstable and volatile situation … This will force (parties) to think more about coalitions,” said Francisco Pereira Coutinho, a political scientist.

Opinion polls show support for the Socialists little changed from the 36% they took in the 2019 election. The Social Democrats poll at about 27%. The hard-left parties are in single digits and set to lose seats.

(Additional reporting by Catarina Demony; Editing by Mike Harrison and Paul Simao)

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