Portugal adopts anti-austerity budget despite concerns

Portugal's Socialist-led lawmakers have approved a 2016 budget that pledges to reverse unpopular austerity measures but is seen as high-risk by critics and investors, with Lisbon under EU pressure to stay on a disciplined path.

"This budget proves it is possible to live a better life in Portugal," socialist Prime Minister Antonio Costa said yesterday.

The vote came a few weeks after the European Commission approved Portugal's draft, but warned that more efforts would be needed by the government to avoid a breach of EU rules on spending.

In response, Portugal cut its budget deficit target for 2016 to 2.2 per cent of gross domestic product (GDP) from a previously announced target of 2.6 per cent.

Last year, Portugal's budget deficit came in at 4.3 per cent, well above the EU's 3.0-per cent limit.

The conservative opposition lashed out at the new budget yesterday, branding it "unrealistic and populist".

"It is a poisoned gift for the Portuguese," said former prime minister Pedro Passos Coelho.

Portugal received a massive international debt bailout in 2011 that saved it from defaulting, but in return the country had to introduce a string of austerity measures.

In four years, over 78,000 public sector jobs were cut -- more than 10 per cent of the total -- alongside other steps the creditors said were needed to return the public finances to balance and put the economy back on track.

Portugal's public debt is forecast to hit 130 per cent of GDP.

True to the socialists' campaign promises that brought them to power in November, Costa's budget restores civil servants' salaries, eases a surtax tax on employees' incomes, and breathes new life into the welfare system.

However, in a bid to appease Brussels' demands, the government also announced a hike in taxes on fuel, vehicles and tobacco.

Analysts were sceptical however that the plan would actually work.

"The budget seeks an impossible balance. It is doomed. It will neither put an end to austerity, nor will it meet the deficit objectives," said Joao Cesar das Neves, an economics professor.