Anti-Austerity and Pro-EU? Strategies of the Portuguese Socialist Government to Square the Circle

In this paper, we bring some nuance to the narrative that sees Portuguese recovery - and the subsequent reduction of debt and deficit - as made possible thanks to the ending of austerity, that allowed more growth and revenue. We argue and show that the government pursued - together with more visible reversals of austerity measures - some kind of ‘austerity by stealth’ (that we define as austerity which is less visible and not displayed by the government in its public discourse). More specifically, we look at the evolution of the weight of government spending and revenues, and observe a shift from direct to indirect taxation revenue, and a decrease of relative spending in health, education and investment as compared to 2007 or even 2013. Additionally, to better understand the trend in the quality of services offered to citizens, we look closer at one specific field, the health sector. There, we find evidence for a prolongation of austerity, despite the increase in health workers’ wages and the decrease of their working hours. However, the burden of such austerity was bared by hospitals and the pharmaceutical stakeholders, rather than by the households directly. Those measures of austerity by stealth, we further show, were implicitly agreed by the radical left parties during the negotiations of the agreements with the PS, back in 2015, and of the annual budgets (together with the respect of the European budgetary frameworks), in exchange for the adoption of a long list of visible anti-austerity policies. Those measures enabled the Portuguese government to reduce the country’s deficit in line with the European Monetary Union ceilings, and by the same token to gain credibility with investors and decrease the costs of interest-debt repayments. That, in turn, from 2016 onwards widened the fiscal space for the government to increase (partially) back investments that had been dramatically cut over the years.