Austerity is back for another year of sacrifices. The 2014 State Budget measures presented by the government this week confirm the population’s worst fears, with public sector workers and pensioners the most affected – the budget foresees heavy cuts on salaries and pensions as well as a focus on gradual layoffs.
While the government stands by its position, considering these measures “inevitable”, opposition parties have voiced their concerns, with some describing the measures as a “brutal attack” on workers and pensioners and others fearing consequences such as an economic recession in the coming year.
Nonetheless, the government believes that its decisions are expected to help the country fulfil its agreement with the Troika and reduce its public deficit to 4% of the GDP next year.
The final draft of the budget was approved after a 17-hour meeting of the Council of Ministers that ended at 3am on Monday this week.
Finance Minister Maria Luís Albuquerque said the following day that the measures included in the coming year’s state budget should not be seen as “surprising”.
“I understand that there might have been hope that some of the measures may not be implemented. However, I see no reason for surprise or a clash of expectations ever since we reasserted our commitment to Troika in terms of matters such as the budgetary goals for 2014,” said the controversial minister, who has been urged to resign from her post continuously by opposition parties due to her alleged connection to a swap scandal.
Albuquerque considers that the bulk of the austerity measures were announced in May and she therefore did not expect differing expectations.
These statements came a day before the budget was formerly presented to the public on Tuesday (October 15) by the same minister, first to the Parliament and later on national TV.
Starting off the presentation, she said: “It is important to remember what has been achieved, at a time when we present such a demanding budget.”
The head of finance stressed that the adjustment plan has prevented bankruptcy and ever since its implementation the country has fulfilled its commitments.
“The sacrifices we are calling for are essential,” Albuquerque pledged.
When questioned if she thought the measures included in the budget might be rejected by the Constitutional Court, Maria Luís Albuquerque stated she believed they abided by the court’s requirements.
However, she confirmed that the government does not have a “plan B” prepared if the measures are rejected.
Nonetheless, she left a word of encouragement for the population while concluding her speech: “The time has come to persevere, not to give up. This is the principle which defines the 2014 State Budget.”
The budget proposal is not consensual among all parliamentary parties.
Pedro Marques, vice-president of the Socialist Party (PS) parliamentary group, said that the 2014 State Budget confirmed the party’s “fear of a whole new bunch of austerity measures”.
He questioned the government’s decision to implement more austerity at a time when “the country will be registering the same deficit levels as 2012”. Marques also predicted that these decisions might lead to economic recession in 2014.
Contestation also came from the PCP and BE. The left-wing parties criticised the government’s “brutal attack” against workers and pensioners, especially when compared to what is expected of the banking and energy sectors.
Whether approved or rejected by the Constitutional Court, the 2014 State Budget measures present nothing new for a population that has become accustomed to living in austerity mode.
|| 2014 State Budget measures in a nutshell
Public sector cuts
Public servants who earn a monthly wage above €600 will be facing a cut of between 2.5% and 12% on their monthly wages next year. The government guarantees that the temporary measures will not affect those with salaries under €600, while workers who will be subject to a salary cut will never receive under €600.
Public enterprise layoffs
Public companies or entrepreneurial public entities from the Sector Empresarial do Estado (SEE) are expected to reduce the number of workers by 3% compared to the month of December 2012. However, hospitals are excluded from this measure.
State worker reduction
The government expects a reduction by 2% of public administration workers in 2014. Retirements are prioritised in this measure.
Pensions targeted
The government will continue charging the extraordinary solidarity contribution (CES). Pensioners who receive a monthly wage between €1,350 and €3,750 will have to contribute 3.5% to 10% of their income, while pensioners receiving above these values will contribute 10%. Pensions above €5,000 are affected by a 15% cut while those above €7,545 are subject to a 40% cut.
Retirement age increase
The official retirement age in 2014 will be raised from 65 to 66. Workers who turn 65 this year, however, may retire in 2014 under the same conditions as 2013.
Christmas subsidy paid in twelfths
Public servants and pensioners will be receiving their Christmas subsidy in twelfths (amortised across 12 months).
Shorter schedules, lower pay
Public workers willing to reduce their daily or weekly-work schedule by two or eight hours, respectively, will be exempt from the public sector cuts on salaries above €600. However, their wage will also be cut proportionally to the hours they no longer will work.
Restaurant VAT unchanged
Hopes of restaurateurs and opposition parties were crushed when it was announced that restaurant VAT will continue at 23% in 2014 instead of the proposed lowering of the rate to 13%. Restaurateurs have already reacted saying they are “shocked, disappointed and outraged” by the move.
Road tax up
The government plans to increase the cost of the Single Circulation Tax (IUC) for car drivers and diesel motorcycle drivers through an additional charge which ranges from €1.39 to €68.85.
Higher tobacco tax
Cigarettes, cigars, cigarillos and fine-cut tobacco will see their taxes raised. The government hopes to gain over €1 billion with this measure.
