Portugal's Socialists and far-right team up again to block government, budget doubts mount

FILE PHOTO: Debate of the new government programme at the Portuguese Parliament, in Lisbon

LISBON (Reuters) - Portugal's centre-right minority government on Wednesday suffered another setback as the far-right Chega teamed up with the Socialists to block an income tax cut for the middle class, raising doubts about the 2025 budget's approval.

The tax reduction proposed by the government, which would have provided fiscal relief for workers earning up to around 5,800 euros ($6,300) per month, failed in parliament as all left opposition parties voted against and Chega abstained.

Instead, lawmakers passed the Socialists' alternative proposal that limited the cut to lower-income citizens with a gross wage of up to 2,850 euros - also thanks the far-right's abstention.

"The Socialist Party has an accomplice to block the government and an accomplice against the middle class. That accomplice is Chega," said the ruling Social Democrats' parliamentary leader, Hugo Soares.

Socialist leader Pedro Nuno Santos called his party's proposal "socially fairer" than that of the government, which he said should negotiate with other parties.

Chega lawmaker Rui Afonso said the Socialists' proposal was more favourable as it better targeted lower-income workers.

Portugal is one of Western Europe's poorest countries, with a minimum wage of 820 euros per month.

The conservative Democratic Alliance (AD) coalition won a general election in March by a slim margin over the Socialists and needs either their votes or those of Chega - which quadrupled its seats - to pass legislation in the most fragmented parliament in 50 years.

This is not the first time the new government has lost a parliamentary vote. Last month, Chega teamed up with the Socialists to end toll payments on eight motorways, imposing an unwanted increase in public spending.

"The state budget will be the cornerstone of whether Portugal has government stability," political analyst Antonio Costa Pinto told broadcaster RTP.

The final vote on next year's budget is expected to be held by the end of November.

($1 = 0.9193 euros)

(Reporting by Patrícia Vicente Rua; Additional reporting by Sergio Gonçalves, Editing by David Latona and Toby Chopra)