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Portugal’s expat tax reform and privatisation plans have been put on hold in the wake of prime minister António Costa’s shock resignation over a sprawling corruption encompassing lithium mines.
The Socialist prime minister, in power since 2015, stepped down after prosecutors issued arrest warrants and raided government buildings in an investigation into possible corruption, malfeasance and influence peddling.
Costa denied wrongdoing but said he could not stay on given the “suspicions about [my] integrity” raised by prosecutors.
The country has been left in political limbo. It awaits a decision on Thursday from president Marcelo Rebelo de Sousa on whether to appoint another prime minister from the current parliament, which analysts regard as unlikely, or dissolve parliament and call a snap general election for early next year.
“None of the options are good,” said Paula Espírito Santo, a political science professor at the University of Lisbon (ISCTE). “I think the solution will be the dissolution of parliament and new elections. But everything is still open.”
The uncertainty also covers next year’s budget, which aimed to tackle the cost of living crisis by scrapping tax breaks for well-off foreigners and cutting income tax for others.
The budget drew international attention for ending tax benefits including a 10 per cent flat tax on overseas pensions. But Nuno Cunha Barnabé, a partner at Abreu Advogados, a Lisbon law firm, said it was vital domestically to tackling the soaring cost of living via tax cuts and increases in public sector pay and pensions.
“If you have all these people continuing to suffer with inflation, not having any tax relief or any salary increases for at least another four, five or six months . . . That’s the sensitive part of it,” he said.
The president could choose to delay his formal acceptance of Costa’s resignation and dissolve parliament at a later date, leaving enough time for the existing body of lawmakers to first approve Costa’s budget.
Cunha Barnabé said the president “always has the ability to surprise everyone with new constitutional interpretations of powers . . . We never know what he’s going to decide”.
The opposition Social Democrats criticised the budget when it was unveiled in October, saying the government was keeping taxes too high and failing to introduce structural reforms to stimulate growth.
After Costa’s resignation, party leader Luís Montenegro said: “It is imperative to regain the credibility and trust [in government] that have been lost and squandered. The only way is through early elections.”
The premier stepping down also slams the brakes on Portugal’s plans to reprivatise the national carrier TAP, a separate legislative initiative that had set up a potential bidding war involving British Airways owner IAG and Air France-KLM.
The government had said it would sell a stake of at least 51 per cent in the airline, which is estimated to be worth around €1bn and swung back into profit in 2022 after years of trouble that have included near bankruptcy, a public bailout and scandals.
The prosecutors’ case cuts to the heart of Costa’s legacy as it centres on transformative economic projects including Portugal’s push to become Europe’s leading source of lithium — a mineral used in electric cars that is sourced almost exclusively from outside the continent today.
In focus are two high-profile mining projects in the north of the country that have already generated strong local resistance. Nine Portuguese organisations opposing mining activity called on Tuesday for the immediate cancellation of environmental approvals granted to the projects earlier this year.
One mining concession for the Barroso lithium project is held by London-listed Savannah Resources, which aims to become a cornerstone for Europe’s EV industry by producing enough lithium for 500,000 electric cars a year.
The company’s shares slumped as much as 20 per cent on Wednesday over concern that the probe could delay plans to begin production in 2026 and also obstruct the search for a strategic partner to assist with financing the development.
Savannah said that it is co-operating with investigators and that neither the company nor its employees are official suspects in the investigation. It added that work at the Barroso project is continuing and its mining leases issued in 2006 remain in “good standing”.
The second project under investigation is the Romano mine in Montalegre, where the concession is held by the private Portuguese prospector Lusorecursos. It did not respond to requests for comment.
Additional reporting by Sérgio Aníbal in Lisbon
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