Social partners and new government discuss reform

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In May 2002, discussions were underway between Portugal's new centre-right government and the social partners on possible reform of various areas of social and employment policy, including social security and labour law flexibility.

At the general election held on 17 March 2002, the governing Socialist Party (Partido Socialista, PS) was defeated and replaced by a coalition of the centre-right Social Democrat Party (Partido Social Democrata PPD/PSD) and the right-wing People's Party (Partido Popular, CDS/PP). At the end of April, the new government and the social partners made their first contact, with the agenda for discussions focusing on the following main areas of potential government action:

• social protection reform;

• flexibility at work, with particular regard to changes in labour law;

• taxation, with the government announcing a possible rise in VAT; and

• the economic situation and pay restraint, particularly a freeze in the value of civil servants' salaries, preventing them from rising in real terms (a rise of 2.75% is planned for 2002, whereas inflation in 2001 was well above the figure forecast).

This context is a budgetary crisis that has created certain difficulties with regard to Portugal's compliance with European Union stability and convergence measures. At the beginning of 2002, Portugal's deviation from its public finance plans led the European Commission to conclude that there is a significant risk of Portugal breaching the 3% of GDP threshold for public deficits laid down in the Economic and Monetary Union (EMU) convergence criteria. This crisis is seen chiefly as a result of the orientation of Portuguese public expenditure, in addition to weak economic growth.

Both the employers and the trade unions see the need to reduce public expenditure, bolster public and private investment and introduce more rigorous management in the public administration. However, the unions will not accept a reduction in social expenditure, pay or pensions, claiming that there is a high level of tax evasion and calling for fair taxes on wealth to rectify distortions. The unions also question the budgetary crisis scenario that the government is presenting.

On labour and social security law, the new government has announced that it will not be liberalising existing redundancy regulations, but it envisages possible changes in the 2000 Basic Law on Social Security (PT0007100F) and the 2001 tripartite agreement on social security reform (PT0112112N). For instance, the government may amend the 2001 agreement's provisions allowing employees to invest their pension contributions above a certain ceiling in a private scheme rather than the state system. The government may lower the ceiling on the income subject to old-age pension contributions above which employees may opt to contribute to a private scheme, from 12 times the monthly national minimum possibly to seven or eight times this amount.

The employers see a need for a reduction in corporate taxation to make business more competitive. The Portuguese Commerce and Services Confederation (Confederação do Comércio e Serviços de Portugal, CCP) states that there is a need for more homogeneous taxation between sectors, attention to tax benefits, and structural reform of the health, educational and judicial systems.

The General Confederation of Portuguese Workers (Confederação Geral de Trabalhadores Portugueses, CGTP) has concerns about the government's plans, in particular regarding the modernisation of the social protection regime and the health service. The union confederation calls for a rationalisation of the public administration, the promotion of public services and an end to subcontracting and precarious employment.

The General Workers' Union (União Geral de Trabalhadores, UGT) is happy to talk about changes in social security, as long as they do not include measures that cast doubt on the sustainability or philosophy of a public pensions system. UGT does not, however, consider changes to the system as urgent since it was only recently that new formulas for calculating pensions were dealt with by the 2001 social security agreement. Under the terms of this agreement, the government will have to prove that any new measures do not put the recent Basic Law on Social Security in doubt, or the previous binding opinion of the Social Security and Solidarity Council (Conselho de Solidariedade e Segurança Social) on these issues. UGT has also called for: resumption of the social dialogue; the implementation of the central agreements negotiated in 2001 on social security, health and safety (PT0102135F) and employment and training (PT0102134F); and policies promoting public investment.