Portuguese Economical Situation Hasn’t Improved Thanks To Interventionism

Western socialists and communists are claiming the economic recovery of Portugal shows the case for “anti-austerity” measures as a response to the financial crisis. In my native Spain, advocates of the reedition of Popular Front espouse that argument as well.

Portuguese government is ruled by the socialist Antonio Costa with the support of a socialist-communist coalition. The 2015 legislative elections were won by the center-right bloc (PPD/PSD.CDS-PP) led by former Prime Minister Pedro Passos Coelho, but the lack of an absolute majority opened the door to negotiations between Socialist Party, Bloco de Esquerda and the Communist Party.

On October 1, 2017, Portuguese center-right got the worse results in its history. Coelho’s party lost more than 25 town councils while the ruling party improved 2013 results. So the former Prime Minister considered not to remain as the PSD leader. Last month, centrist Rui Rio was chosen as new leader of the main center-right party of the country.

Last year, the European Commission ruled out the country from the procedure of excessive budgetary deficit, after a debt crisis that began in 2010 and led to a political crisis -underwent by socialist Socrates government- as in elections one year after, in which center-right won with enough support to govern. But is it so real that anti-austerity might have been a solution?

First, if the unemployment rate has fallen down so far to be like in 2004, policies orientated towards a freer labor market might have been what have played a key role. Costa has not reverted to plans based on dismissal compensation reduction from 22 to 14 weeks, freezing of the minimum wage and diminishment of collective bargaining. He’s applied more reductions arranged with “Troika”.

Second, while in my native Spain there still there is a budgetary deficit on 3% of GDP, Portugal has begun the new year with data narrow to 1 per cent. Whatsmore the ratio between government spending and GDP is around 44 per cent, 8 points less than in 2014. In nominal terms, public spending “raised to the top” in 2014. But public debt increased in €1’600 million in 2017.

Third, he has released a “national plan of reforms” that contemplates some policies proper of a non-leftist government (combined with others that are more interventionist) such as the set of advantages for private investment on investigation, attraction of private capital, simplification of public administration, reduction of debt and boosting of private sector finance.

With the exception of the 2018 minimum wage raise, most of Passos Coelho’s policies have not been reverted. Among them we may find apart from others previously mentioned: rearrangement of health and pharmaceutical spending, cut on subsidies for corporations and reductions on public servants rates.

Moreover, despite far-left support at the time of electing a Prime Minister, the main economical and financial measured have been arranged with center-rightist opposition. The new president of the Eurogroup, the Finances Minister Mario Centeno calls for a monetary union where “solidarity will go together with responsibility”.

However, instead of applying a high-impact tax cut like in Ireland and Estonia, the socialist government has created new taxes on soft and alcoholic drinks, salty snacks, touristic flats –struggling against “shared economy” like AirBnb, and heritage with a value higher than €600’000.

Furthermore, in the 2018 edition of the Index of Economic Freedom, The Heritage Foundation warns that Portuguese tax burden is in levels of a mostly unfree economy. It points that “the overall tax burden equals 34.5 percent of total domestic income” as in the “the top personal income tax rate is 48 percent, and the top corporate tax rate is 23 percent”.

That said, we cannot deny that there have been some macro economical improvements in the Portuguese economy though despite of high debt and tax burden levels it is utterly non-sense to consider an “anti-austerity plan” has been successful. Socialists have not rolled back most of policies they reported during the election campaign.

Aside that topic, educational freedom and human dignity are “endangered” in Portugal by the extent Costa’s cabinet is applying discriminatory cuts against concerted (mostly religious) schoolsas their Spanish fellows had planned since a long time ago. Meanwhile, last year surrogacy (something that materializes unborn children) became legal.

So at the same time we may criticize the preservation of “big government” in Portugal as we ask for an economic boost similar to Irish, we must not be limited only to economic-utilitarian points. Economics is not the only important issue. Religious liberty and human dignity are as important as a friendly environment for businesses and families.

In conclusion, what at the moment has been determinant for Portuguese economy has been the European stream of utilitarianism. Whereas Nordic social democracy made the Welfare State more friendly with free-market, Portuguese socialists may think it’s better not to be so defiant.



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