Bloomberg News

Portuguese Government Says Court Ruling Has Negative Effect

April 06, 2013

The Portuguese government said a Constitutional Court decision to block planned cuts in salary payments to state workers and pensioners has “negative effects” for the country.

“The government doesn’t agree with the Constitutional Court’s interpretation of the Constitution in its ruling about some norms of the 2013 budget,” Luis Marques Guedes, the secretary of state for the presidency of the council of ministers, said in Lisbon today. “The Constitutional Court’s decision places serious difficulties on the country to comply with the goals and budget targets it has to meet.” The government respects the court’s decision, he said.

Guedes also said the court’s decision has an effect on the country’s international credibility and comes before an “important” European Union meeting in Dublin next week. Portugal has been seeking an agreement from its European partners to extend the maturities of its aid loans, he said.

The ruling by Portugal’s highest court that the measures are unconstitutional means the government may need to find alternative savings to comply with the country’s 78 billion-euro ($101 billion) aid plan from the EU and the International Monetary Fund.

Prime Minister Pedro Passos Coelho is battling rising joblessness and lower demand from European trading partners as he cuts spending and raises taxes to meet the terms of the bailout. The government on March 15 announced wider deficit targets as it forecast the economy will shrink twice as much as previously estimated this year.

Meeting With President

Passos Coelho will address the country at 6:30 p.m. tomorrow. The prime minister requested a meeting today with President Anibal Cavaco Silva, Guedes said.

Cavaco Silva reiterated that the government is in condition to complete its term in office and said he is committed to ensuring that international agreements are honored, according to a statement posted on the presidency’s website after the meeting.

Portugal forecasts debt will peak at 123.7 percent of gross domestic product in 2014. It targets a deficit of 5.5 percent in 2013, 4 percent in 2014 and below the EU’s 3 percent limit in 2015, when it aims for a 2.5 percent gap. Portugal’s budget deficit last year widened to 6.4 percent of GDP from 4.4 percent in 2011.

Finance Minister Vitor Gaspar in October announced an “enormous” increase in taxes on wages and other income to meet deficit targets in 2013 and the government also plans to cut spending by about 4 billion euros in the three years through 2015.

About 80 percent of the deficit-trimming effort in the 2013 budget plan comes from revenue gains, most of which being 3.7 billion euros of tax increases, with the rest coming from spending reductions.

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net


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