Austerity set to increase inequality in Portugal

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Adelaide Renaldo, whose husband washes cars, cannot afford schoolbooks for her three children. Conceição Viegas was a cleaner but has been jobless for two years. Her husband, a labourer, is also unemployed. Maria Vítoria has been trying for months to claim a pension.

These women waiting for a weekly food handout outside a prefabricated hut on the edge of a Lisbon housing estate are feeling the full force of a deepening recession and increasingly painful austerity measures as Portugal struggles to comply with the terms of a €78bn financial rescue programme.

“They give us rice, beans, milk, sometimes fruit and sausage. It would be very hard to get by without their help,” says Teresa Ramos, who worked in a laundry but has been unable to find a job for three years. She and her unemployed husband subsist on welfare payments of barely €300 a month.

The women queuing for food at the Companheiro (Companion) welfare unit are struggling to make ends meet in western Europe’s poorest country. They are also on the wrong side of Europe’s widest gap between rich and poor.

Across two busy roads they can see a modern private hospital, Lisbon’s grandest shopping mall and Benfica football club’s plush 65,000-seat stadium, opened in 2003 when Portugal was trying to build itself out of a previous recession.

According to a report this month by the Organisation for Economic Co-operation and Development, income inequality in Portugal is the highest in Europe. Sociologists and welfare groups fear that next year’s austerity budget, the harshest in living memory, together with record unemployment and a contracting economy, will widen the gap even further.

A new study for the European Commission by the UK’s Institute for Social and Economic Research says the austerity measures implemented in Portugal in 2010 were “clearly regressive”, causing the poorest families to give up a bigger share of their disposable income than wealthier households.

Work by Portuguese sociologists, supported by OECD data, shows that Portugal made considerable progress in closing its income gap from 2004 until the onset of the global economic crisis in 2008. Concern is now growing that increasingly tough austerity is reversing that trend.

“I think by this time next year, inequality in Portugal will be even greater than it is today,” says António Barreto, a leading sociologist who has investigated the causes of the country’s income gap over several years.

“Most of the damage is likely to be caused by plans to increase the qualifying thresholds for minimum incomes, unemployment pay and other social benefits.”

The biggest concern is that restricting benefits and tightening tax thresholds will create what welfare organisations are already calling the “new poor”, people who earn marginally too much to qualify for social payments and tax exemptions but not enough to meet their mortgage payments or rising health and education costs.

“This is a very serious risk for Portugal,” says Isabel Jonet, who runs the Food Bank Against Hunger, a volunteer organisation that distributes donated food through welfare organisations across the country. “This class could suffer more than those officially below the poverty line, because they don’t qualify for the social support they need.”

The provision of social benefits in Portugal is often below subsistence, says Ms Jonet. “More than 1m elderly people receive pensions of less than €280 a month,” she says. “You cannot survive on that. An individual earning only €620 a month is considered ‘middle class’ for tax purposes and not eligible for most benefits.”

Mr Barreto sees inequality in Portugal as partly attributable to a high concentration of property ownership and an excessively large state sector that is both “too fat and too weak”. This means well-organised lobbies of doctors, judges or teachers have the power to grab “a big slice of the cake”.

According to OECD figures, Portuguese schoolteachers earn below the European average in absolute terms, about the average when corrected for purchasing power parity, but more than any other European teachers as a share of national income.

In the course of one morning at O Companheiro, Sílvia Moço, a young welfare worker, has already dealt with five urgent cases of people needing food or shelter.

“Our main goal is to get people back into work,” she says. “But more families are asking for help week by week.”

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