EU and Portugal clash on budget plan for 2016

The European Commission says there are “big differences” in talks with Portugal about the nation’s draft budget plan for 2016, which aims to reverse measures that the previous government implemented as part of a bailout programme.

“As for the discussions that are ongoing, there are big differences and we are working with the Portuguese authorities to close the gap,” said Annika Breidthardt, EU spokeswoman for economic policy.

Portuguese prime minister Antonio Costa’s minority socialist government plans to reverse state salary cuts and bolster family incomes, easing austerity measures faster than the previous administration proposed.

Mr Costa says he can do that, ensuring support from the Communists in parliament, and keep the budget deficit within the EU limit of 3% of GDP through 2019.

The government last month said the 2016 budget deficit will be 2.6% of GDP this year.

The structural deficit will narrow by 0.2 percentage points to 1.1% in 2016, according to the budget plan.

It sees economic growth of 2.1% in 2016, more than the European Commission’s forecast for a 1.7% expansion.

The 2016 budget proposal “is based on growth forecasts and revenue and spending plans that may prove unrealistic”, Fitch Ratings said last month.

The forecasts in the 2016 budget plan are “realistic,” Mr Costa said in parliament last week.

“The budget will respect the commitments that we assumed electorally with the Portuguese, it will respect the commitments we assumed with the parties that approved the government in parliament, and it will also meet the objective of complying with European rules,” he said.