Photo of October protests against the Portuguese government in Lisbon.
PHOTO: Courtesy Teresa Teixeira/iReport
Photo of October protests against the Portuguese government in Lisbon.

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Portugal's government could face legal challenges to tough austerity measures

President Silva asked the country's constitutional court to scrutinize proposed cuts

Move could force the centre-right government to redraft important sections of its 2013 budget

(Financial Times) —  

Portugal’s government could face legal challenges to the tough austerity measures planned for 2013 after President Aníbal Cavaco Silva asked the country’s constitutional court to scrutinise proposed cuts to pay and pensions.

Mr Cavaco Silva, a conservative, said on Wednesday he had asked the court to verify whether planned cuts in public sector pay and state pensions, as well as an additional “solidarity tax” on pensions above €1,350 a month, were permissible under the constitution.

His move could force the centre-right government to redraft important sections of its 2013 budget, potentially undermining Lisbon’s efforts to meet deficit-reduction goals agreed with the EU and International Monetary Fund as part of a €78bn bailout.

After rulings by the constitutional court overturned planned austerity measures in 2012, the president’s decision again raises the prospect of Lisbon’s adjustment programme becoming bogged down in protracted legal wranglings.

Under the 2013 budget, Portuguese families face the biggest tax increases in living memory as the government seeks to increase income tax revenue by 30 per cent.

State employees and those on government pensions stand to lose the equivalent of one of the 14 instalments in which they receive their annual pay. Pensioners receiving more than €1,350 a month will also have to pay an emergency tax surcharge of between 3.5 and 10 per cent.

Mr Cavaco Silva signed this year’s budget into law last week. But in a New Year’s address he expressed concern that the burden was not being shared equally.

Everyone would be affected by a big increase in taxes and cuts in welfare payments, he said. But he feared that some would be “more penalised than others”, saying “well-founded doubts” had been expressed about the “just sharing of sacrifices”.

He said he had decided to sign the budget into law despite his concerns because of the “extremely negative consequences” that vetoing it would have for Portugal externally.

By approving the budget, but also asking the constitutional court to vet the measures, Mr Cavaco Silva has avoided a direct political confrontation with the government while at the same time taking action that will at least partially appease critics of the austerity measures.

However, the decision is expected to increase political tensions between the president and Pedro Passos Coelho, the prime minister.

Although Mr Cavaco Silva is a former leader of the prime minister’s centre-right Social Democrat party (PSD), his role as head of state is to ensure the constitution is upheld and to act as an impartial referee in the event of a political crisis.

Under Portugal’s 1975 constitution, the president has no direct executive powers, but can veto important legislation, including government budgets.