Executive Summary

Change in political leadership
The period under review has been marked by significant changes to the government, the president and political outlook. On 26 November 2015, António Costa was sworn in as prime minister of a minority Socialist Party (PS) government. On 24 January 2016, Marcelo Rebelo de Sousa was elected president. Consequently, all the political actors that had governed between 2011 and 2015 were replaced.
New voices in
This change in actors has been accompanied by a substantial change in political outlook. First, while a minority government, the Costa government has come to and remained in power with the parliamentary support of three parties that had previously been excluded from national government, namely the Portuguese Communist Party (PCP) and its close ally, the Ecologist Party (PEV), and the radical Left Bloc (BE).
Long-time opposition
now part of coalition
This marks a considerable change vis-à-vis the previous 40 years. Notably, these three parties voted in favor of the 2016 and 2017 government budgets. This was the first time any of these three parties had voted favorably for a government budget. Indeed, the only previous instance that one of these three parties had not voted against a government budget was the PCP’s abstention from the 1977 government budget.
Austerity reversal requires fiscal balancing act
To gain their support, the PS negotiated deals with all three parties, which required the reversal of several austerity measures, though the PS’s 2015 election manifesto included several of these measures. This marked a stark contrast with the prevailing 2011 to 2015 austerity agenda pursued by the Social Democratic Party (PSD) and People’s Party (CDS-PP) coalition government of Prime Minister Pedro Passos Coelho. This situation introduced some friction between fiscal consolidation and fiscal expansion policies, which the government must now negotiate to maintain its parliamentary majority that includes the far-left parties.
President sets conditions for new coalition. New president takes power
The second change pertains to the presidency. Portugal’s semi-presidential system grants the president important legislative and non-legislative powers. Legislative powers include veto powers and the ability to refer legislation to the constitutional court. Non-legislative powers include the ability to dissolve parliament and call a general election. In October 2015, President Aníbal Cavaco Silva met with all the parties represented in the Assembly of the Republic. Then on 23 November 2015, before he allowed the formation of the Costa government, he stipulated a series of requirements dealing with the government budget, economic issues, domestic consultation and membership in collective defense organizations. Following the presidential election on 24 January 2016, Marcelo Rebelo de Sousa, leader of the PSD, was elected president with 52% of the vote. President Marcelo Rebelo de Sousa stated his determination to achieve political stability, and honor Portugal’s economic and foreign policy commitments.
Sharp change in presidential style
In appearance, President Marcelo Rebelo de Sousa differs little from his predecessor, Cavaco Silva. They were both leaders of the PSD, and were elected with the backing of PSD and CDS. Yet their presidential style has been markedly different. President Marcelo Rebelo de Sousa has been a popular president, adopting a supra-partisan position and avoiding tensions with the Costa government. In contrast, towards the end of his presidency, Cavaco Silva became very unpopular, had a difficult relationship with the Costa government and was perceived by the left as highly partisan.
Turning the page on austerity. Economic realities remain challenging
In the previous review period, the government’s policy agenda was driven by austerity, despite Portugal’s successful conclusion of its EU bailout package. During the current review period, there has been a change in approach, which could be described as “turning the page on austerity.” The government, with the backing of its parliamentary allies and the apparent support of the president, has sought to reverse a series of austerity measures. However, while its socio-economic policy agenda is very different from previous governments, Portugal’s economic and political realities have changed little since the PS government of Prime Minister José Sócrates (2009-2011) under which the initial austerity program with “the Troika” was negotiated. Though there has been some changes to, for example, the pension system and civil servants’ salaries. In 2016, economic growth is estimated to be only 1.1% and unemployment remains high at 11%. Furthermore, the government budget deficit was equivalent to 4.4% of GDP in 2015, despite a government target of 3% of GDP. While the European Union decided not to impose sanctions on Portugal and Spain in August of 2016, there remains the threat of future sanctions if certain targets for fiscal consolidation are not met, including a reduction of the government budget deficit.
Actual change
remains gradual
Actual change lags behind the change in political outlook and discourse. Three factors underlie this stability. First, the PS government remains strongly committed to achieving Portugal’s EU bailout commitments for fiscal consolidation. This has meant that “turning the page on austerity” has been a gradual process, balancing expansionary policies against other contractionary policies. While the government has increased some taxes (e.g. fuel), it has also reduced others (e.g. income tax). Second, the impact of some measures (e.g. increases in welfare expenditure) will take time to take effect. Third, this report only covers the first year of the Costa government with much of the Costa government’s ambitious program yet to be implemented.
Governance weak-
nesses persist
At the same time, Portugal’s low governance scores relating to policy formulation must be noted. These remain largely unchanged in this period, with almost no regulatory impact assessments, weak strategic component of decision making, weak monitoring of institutional governing arrangements and little systematic effort to improve strategic capacity. This weak institutional capacity is likely to impinge on the quality and effectiveness of policymaking. While the Costa government program does include several measures regarding governance, the question remains whether the government can deliver in a policy area where so many of its predecessors promised more than they achieved.
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