The Portuguese government presented on Thursday its proposal for the General State Budget for 2025. This is an important moment in the Portuguese political calendar because the President of the Republic, Marcelo Rebelo de Sousa, has clearly indicated that if the proposal was rejected, he will repeat the 2021 formula and call early elections to clarify the political situation. The center-right government does not have a parliamentary majority, which further complicates the situation.
In recent weeks, negotiations have taken place between the government and the Socialist Party (PS), which had three demands to make the document viable: that the government cancel the tax cut for businesses, that the tax cut for companies be changed for the youngest – which would benefit the richest – and that the privatization of the state airline TAP was not included in the document – which ended up happening.
The government planned to tax only 15% of the income of young people up to the age of 35, but this measure would practically only benefit the richest, since the majority of young people earn low salaries, exempt from income tax or for a small contribution. .
To try to get closer, the government is now proposing a total exemption from income tax for young people during the first year of work, which will be reduced depending on the years of work of the young person, up to a maximum of 10 years and with an age limit of 35 years. Between the second and fourth years, they would benefit from a 75% deduction, between the fifth and seventh, 50% and between the eighth and tenth, 25%. The Socialists have already presented a similar measure. The measure applies to salaries up to 28,000 euros.
The aim is to stop youth emigration, as Portugal faces a problem of low wages and high housing costs that has pushed thousands of qualified young people to leave for central and northern European countries. According to data from the Emigration Observatory of the University Institute of Lisbon (Iscte), one in four Portuguese aged 15 to 39 lives abroad.
For its part, the proposed reduction in corporate tax turned out to be lower than initially planned, going from the current 21% to 20%, compared to the 19% proposed by the Executive.
Despite the center-right government’s concessions, the Socialist Party has not yet confirmed the meaning of its vote. The last meeting of socialist deputies, held last Tuesday, resulted in a clear division within the party. There is a faction that recognizes the importance of making the document viable through abstention, guaranteeing political stability in a period of international turbulence, and another current – that of leader Pedro Nuno Santos – who prefers to disapprove the budgets, pushing the government towards the necessary measures. negotiation with the far-right Chega party.
Chega, which had initially stayed out of any negotiations, ended up holding secret meetings (which eventually became public) with the government, but the far-right party does not support the budgets.
The 80 deputies available to the conservative government – from the Social Democratic Party (PSD) and the Christian Democrats of the CDS – are far from the 116 needed to approve the budgets and the scenario is unpredictable. Less than a year after the Portuguese called to the polls due to the resignation of former Prime Minister António Costa, a new election is not ruled out.
The far right does not want elections
On Thursday, Chega leader André Ventura admitted in an interview with CNN Portugal that the far-right party had been invited to be part of the government if it approves the state budget, but he criticized the Prime Minister Luís Montenegro for having “played a double game” by continuing to negotiate budgets with the socialists. Montenegro has denied André Ventura, whom it accuses of “lying and being desperate”.
While polls show a downward trend for the far-right party, in favor of parties that support the government, Chega leader André Ventura has changed his mind. He went from rejecting any type of negotiation with the government to asserting that his party “will do everything possible to avoid a political crisis.”
Internal pressure to avoid losing MPs in the event of new elections was decisive. Chega currently has 50 MPs, but in the last European elections it lost half of its support compared to the parliamentary elections in March, triggering alarm within the party.
If the elections are repeated and the polls do not fail, the only beneficiaries would be the government parties – PSD and CDS –, which have retained some of the voters who voted for the far-right Chega party in March. Prime Minister Luís Montenegro says he is “deeply convinced” that the budget will be approved, but he is not worried about new elections if they are necessary. The leader of the Socialists, for his part, affirms that his party “does not want elections”, but that he “will not throw his convictions in the trash”.
In recent months, the government has appeared every week to announce measures considered popular in order to guarantee social peace and to be advantaged in the event of an early repeat of the elections. From reducing the price of train tickets – with the creation of a subscription for the whole country at 20 euros per month – to tax advantages for young people buying their first home or increasing salaries for particular careers like those of doctor or teacher, Prime Minister Luís Montenegro wanted to take advantage of the budgetary slowdown left by the socialists to resolve a series of outstanding situations. This is why a large part of the measures in these General State Budgets had already been presented before this Thursday.
Regarding the high figures of these state budgets, the government expects that Portugal will experience growth of 2.1% next year and that the public accounts will show a surplus of 0.3%. Public debt, which at the end of 2023 was again below 100% of GDP, will now be reduced to 93.3%. They also increase social assistance for the elderly or the offer of newspaper subscriptions for young people and the payment of 50% of subscriptions for the rest.
The Portuguese minimum wage will increase from 820 euros currently to 870 euros, with the prospect of reaching 1,020 euros in 2028.
For now, the key dates for the political future of the country remain: the first vote on the document will take place on October 31 and, if approved, the sectoral debates will continue and the different parties will be able to present proposals for ‘amendments. The final vote, after all amendments, is scheduled for November 29.
