LISBON Nov 25 Portugal's parliament will vote
on Tuesday on an austere 2014 budget, almost certainly
triggering a spree of constitutional challenges that may
threaten its smooth exit from an international bailout next
The Constitutional Court has already overturned a series of
previous public spending cuts. Opposition parties have said they
will challenge new ones once the budget is passed.
The threat could force the government to seek alternative
measures, most likely tax hikes. The danger is that that could
undermine an economy just recovering from its worst downturn
since the 1970s.
President Anibal Cavaco Silva already started the court
process during the weekend, requesting it to review a planned
cut in public sector workers' pensions that makes up a key part
of the government's savings plan for next year. This was a
separate law to the budget and the court now has 25 days to
"A negative ruling would force the government to find
alternative measures to replace the potential lost savings,"
Antonio Barroso, a London-based political analyst at advisory
firm Teneo Intelligence, wrote in a research note.
"This would put the coalition under considerable pressure
given the limited options available at this point."
The 'troika' of lenders in Portugal's bailout - the European
Commission, the International Monetary Fund and the European
Central Bank - have also identified challenges by the court as
potentially the biggest threat to Lisbon's efforts to meet
budget goals and to exit the bailout next year.
The problem is that the scale of the measures that could be
challenged, both those included in the budget and other plans,
amounts to more than 1 billion euros. A previous law to increase
public employees' working hours is also pending a decision by
"It is probable that the requests for reviews (by the court)
will be repeated like other recent measures were challenged,"
said Antonio Costa Pinto, a political scientist at the
University of Lisbon.
"The most obvious, the main measure to be challenged, are
the salary cuts in the public sector."
The government has repeatedly said its overriding priority
is to meet budget goals as the best way to regain the necessary
confidence to exit the bailout as planned in June 2014 and
return to financing itself in debt markets. In 2014, the
government needs to cut the budget deficit to 4 percent of gross
domestic product from 5.5 percent this year.
The government has not ruled out requesting some sort of
precautionary loan from creditors after the bailout expires.
Rui Barbara, an economist at Banco Carregosa, said after
tough budget consolidation in 2011 and 2012, this year's effort
has not been as tough.
"The point is that in 2014 the (budget) consolidation effort
will return to being substantial," said Barbara. "I have
difficulty believing that the 'troika' would accept any kind of
relaxation of the deficit goal up front, before being sure that
the measures were not possible to implement. The alternative
seems to be eventual new tax increases."
The government has repeatedly said there is no 'plan B' to
find alternative revenues but local media have reported that one
possibility is to raise value-added tax further on many
Still, the Portuguese have seen the biggest tax hikes in
living memory this year and direct and indirect taxes have
repeatedly risen since the country was bailed out in 2011. More
tax hikes could undermine a hoped for return to growth next
At the same time, protests against austerity have started up
again in recent weeks, including by several thousand police last
week. The country's largest union, the CGTP, is planning a
protest on Tuesday to coincide with the budget vote.