Portugal Socialists Poised to Oust Coelho: Guide to What's Next

  • Program includes reversing workers salary cuts in a year
  • Socialists to govern with support from partners in Parliament

Pedro Passos Coelho, Portugal's prime minister.

Photographer: Paulo Duarte/Bloomberg

Portugal’s Socialist Party plans to reverse some of the spending cuts implemented with the country’s international bailout if it succeeds in ousting Prime Minister Pedro Passos Coelho’s administration with the support of its left-wing partners.

Here’s a guide to what to watch in the next few days and what measures to expect from a Socialist Party government.

What happens if Coelho’s program is rejected in Parliament?

Pedro Passos Coelho

Photographer: Patricia de Melo Moreira/AFP via Getty Images

Parliament on Monday started discussing the government program of the ruling coalition, which consists of the Social Democrats and the smaller conservative CDS party. Left-wing parties will present motions to reject the program on Tuesday. The Coelho government will fall if the Socialists and their allies achieve a majority in parliament to reject the program.

President Anibal Cavaco Silva, 76, who has the power to name prime ministers, would then decide if he’ll ask Socialist leader Antonio Costa, 54, to form a government. Parliament can’t be dissolved less than six months after it’s elected, according to the constitution. Should Silva decide a Socialist-led government isn’t a solid alternative, Coelho, 51, could continue leading a caretaker government until new elections, or the president can try to find another premier.

Anibal Cavaco Silva

Photographer: Jacques Demarthon/AFP via Getty Images

President Silva will step down in January after being re-elected for his second five-year term in 2011 with 53 percent of the national vote in the first round. Silva served as a Social Democratic prime minister from 1985 to 1995 and presided over the 1992 signing of the Maastricht Treaty, which cleared the way for the euro common currency.

What are the main measures of the Socialist government program?

The Socialists want to reverse state salary cuts in one year, faster than proposed by Coelho, and plan a gradual increase in the minimum wage to bolster families’ incomes. It also proposes to study changing income-tax brackets and taxing any inheritance of more than 1 million euros ($1.1 million). The value-added tax rate at restaurants will be lowered to 13 percent from 23 percent.

The program forecasts a budget deficit as a percentage of gross domestic product of 2.8 percent in 2016, dropping to 2.6 percent in 2017, 1.9 percent in 2018 and 1.5 percent in 2019.

By comparison, Coelho’s government wants an export-led economic recovery and has a 1.8 percent budget deficit target for 2016. They also plan to ease the level of austerity being applied by reversing state workers’ existing salary cuts by a fifth in 2016, trimming an income tax surcharge and further lowering the corporate tax rate, Finance Minister Maria Luis Albuquerque said on Thursday.

Are we looking at a left-wing coalition government?

Costa is proposing to lead a Socialist Party government with the support of the Communists, Left Bloc and Greens in parliament, but these parties aren’t expected to be part of the administration. Budgets will be discussed jointly by the parties, Costa said early Monday morning.

Antonio Costa

Photographer: Paulo Duarte/Bloomberg

The Left Bloc has said in the past that it wants to restructure the country’s debt, and the Communists have said Portugal should prepare to exit the euro. The Socialists, who requested the bailout and then lost the 2011 election, have been less radical, voting alongside Coelho’s coalition on policies including the treaty establishing the European Stability Mechanism rescue fund.

Portugal is no stranger to forming minority governments, though they tend to be short-lived. It’s more than 15 years since Socialist leader Antonio Guterres led the only minority government in Portugal to survive a full term since 1974, when a four-decade dictatorship ended.

What happened in the Oct. 4 election?

Premier Coelho won the most seats in the first general election since 2011, though his coalition fell short of the majority it had in the past four years. Coelho led the first coalition government to survive a full term in office since 1974.

The opposition Socialists, Left Bloc and Communists combined now have a majority of seats in parliament. The ruling coalition parties took 107 of the 230 seats in parliament in the Oct. 4 election, including 89 for Coelho’s Social Democrats. The Socialists have 86 members of parliament, while the Left Bloc and Communists hold 19 and 15 seats, respectively. The Greens have two lawmakers.

Coelho’s coalition, which would now need the Socialists to at least abstain in parliament for legislation to pass, faced voters last month after the country returned to growth and exited its bailout program in 2014.

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