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Portugal's parliament approves draft budget in first reading

LISBON, Oct 28 (Reuters) - Portugal’s parliament approved by a wafer-thin margin the minority Socialist government’s draft 2021 budget on its first reading on Wednesday, paving the way for a steep increase in public investment to reboot the coronavirus-battered economy.

The bill was approved by 108-105 votes with 17 abstentions which notably included the Communist Party, allies of the Socialist government in the previous legislature in 2015-2019.

Prime Minister Antonio Costa criticised the Left Bloc - another former ally - for joining forces with the conservative opposition, leaving only the Socialist bench voting ‘yes’.

The budget will now go to committees for further discussions and possible changes before a final vote on Nov. 26.

The budget projects an extra 550 million euros in families’ pockets through boosting unemployment subsidies and pensions, providing a new social benefit for the poorest workers, and reducing value-added tax on electricity.

Public investment, especially in the national health service and infrastructure, is projected to rise 23% to more than 6 billion euros - the highest level since 2011 when Portugal resorted to an international bailout amid a debt crisis.

“This budget is the first major step of the recovery strategy,” Finance Minister Joao Leao told parliament before the vote, adding that the government was proceeding in a “sustainable and responsible” fashion on public finances.

The draft budget puts economic growth at 5.4% in 2021 in a rebound from an 8.5% slump expected this year - the worst recession in almost a century - and envisages a deficit cut to 4.3% of GDP from this year’s estimated 7.3%.

Still, the figures paint a bleak picture for an economy which grew 2.2% in 2019 to reach its first budget surplus in 45 years, equivalent to 0.1% of GDP.

Responding to criticism from the main centre-right opposition that the budget does not have enough funds for companies, Leao said companies would receive “more than 4 billion euros of non-repayable funds” and promised to keep supporting employment “until the pandemic is over”. (Reporting by Sergio Goncalves, editing by Andrei Khalip, Victoria Waldersee)