Portugal's constitutional court on Friday rejected four out of nine contested austerity measures in this year's budget in a ruling that deals a blow to government finances but is unlikely to derail reforms two years after the country's bailout. The measures rejected by the court should deprive the country of at least 900 million euros ($1.17 billion) in net revenues and savings, according to preliminary estimates by economists.
The Diario Economico newspaper said the government put the impact of the court's ruling at 1.3 billion euros. It did not cite its sources. Debt-ridden Portugal agreed to a 78 billion euro bailout in 2011 from the European Union and International Monetary Fund. The entire package of austerity measures introduced by the 2013 budget is worth about 5 billion euros and includes the largest tax hikes in living memory, which were mostly upheld.
"It's a lesser evil. Putting it into perspective, a good manager and leader should not have difficulty finding room in a budget to accommodate this cut," said Joao Cantiga Esteves, economist at the Lisbon Technical University. "We are talking about an impact of only 1.2 to 1.3 percent of Portugal's total spending," he added. University of Lisbon political analyst Antonio Costa Pinto said that while the impact of the rejected measures was significant, it should not lead to the kind of political crisis that would have been possible had the court thrown out the bulk of the measures.
"The government will have to look very hard for measures to compensate for that and they'll have to talk to (lenders) about alternatives. But it's very difficult to imagine them throwing in the towel or behaving radically because of that." The government has called a Cabinet meeting on Saturday, and would not provide any immediate comment. It has to cut the budget deficit to 5.5 percent of GDP this year from 6.4 percent in 2012, when it missed the goal but was still lauded by its EU and IMF lenders for its austerity efforts.
Analysts consider the outcome manageable and say the government should be able to cover the shortfall with additional spending cuts it has been working on at the request of lenders. Analysts say the lenders could also give Portugal more leeway in terms of budget targets.