2025 and 2009. Do you still remember austerity?

It seems like yesterday. Interest rates were sky-high, access to financial markets was inaccessible, bankruptcy was rampant, corporate bankruptcies were rampant, youth unemployment was skyrocketing, and Portugal, without sovereignty, was living under the foreign protectorate of the troika since 2011. What happened in 2010 and 2011 was only a surprise to those who weren't paying attention. It happened not with a single policy measure, but with a set of seemingly unrelated economic and fiscal policies that contributed to the country's financial collapse.

Since the memory of the people and some politicians is poor, it might be worth remembering that at the end of 2008, our debt burden on GDP was much lower than it is today. The country was growing, but only slightly, as it is today. Unemployment was relatively low, and in 2009, we transitioned from an absolute majority government to a minority PS government. It was precisely at the beginning of 2009 that I began a monthly column in Público and began warning that the budget deficit would be much larger than what was announced at the time by then-Finance Minister Teixeira dos Santos, who, as recently as July of that year, assured that the 5.9% of GDP target was not compromised (it ended up being 9.9%). This largely excessive deficit was partly explained by the recession, but also by the expansionary 2009 State Budget, which included a significant increase in public sector salaries and an increase in pensions. It was the pre-election period—elections in October 2009—and the "textbook" of public choice theory (see here ) recommended it. Austerity measures were to come, and they did, in 2010, after the elections, but it was already too late.

Over the past fifteen years, we have experienced a period of severe austerity under Passos Coelho, followed by a period of severe wage and pension restraint under António Costa. With the lasting sacrifice of many Portuguese, the budget balance was rebalanced, but debt remains excessive. As we approach 2025, we realize from the State of the Nation debate that the current PSD government continues to dedicate itself, like the 2009 PS government, to what I called the art of legislative filigree . This is the political game of approving sectoral proposals or bills, which, if continued, will decisively worsen the deficit and public debt over time. Luis Montenegro announced an extraordinary increase in pensions. This is not a structural measure, but it would be better if these funds were allocated to the Social Security Financial Stabilization Fund, which will sorely need them. Formally or informally, there is already an agreement between the PSD and Chega, in line with the IL, to continue lowering the IRS in 2026, in addition to reducing the IRC.

The cherry on top, which brought back memories of 2009, was the proposal by the leader of the JPP, a regional party that cannot be presented as such because it would be unconstitutional, to revise the Regional Finance Law (LFR). Luís Montenegro not only endorsed the idea but also announced that he would convene a council of ministers with the presence of the two presidents of the regional governments. In 2009, the Madeira Regional Legislative Assembly even proposed amending the LFR. The government is now announcing tax cuts, but at the same time is preparing to burden economic agents living and operating on the mainland. It's worth remembering that the autonomous regions receive all the taxes collected there, which means two things. Madeirans and Azoreans don't contribute a single cent of their taxes to finance the sovereign functions of the State, and all the transfers they receive (Regional Finance Law and Local Finance Law) and regional services provided by the Republic are financed by taxes collected on the mainland (see explanation here). This is why Madeira is now the third richest region in the country (after Lisbon and the Algarve). We will then be here to verify whether the much-touted new LFR, intended to address the perceived negative discrimination against autonomous regions, is nothing more than a continuation of a drain on mainland taxpayers.

There was a long road from 2009 to 2025, but the signs we're receiving are worrying. Between the path of political responsibility and electoralism (now the local elections), the government is clearly on this second path, making concessions to corporations, governments, and regional representatives from various parties united in their insatiable desire for more funding. If we continue like this, the bill will be very high.