After weeks of negotiations, the moderate Socialists were deserted by their hard-left allies from the Communist Party and the Left Bloc. Those two parties have helped shore up the government’s power over the past six years by voting for its policies or abstaining.
The budget proposal was defeated by 117 votes to 108, with five abstentions.
“My conscience is clear," Prime Minister António Costa told lawmakers. "Because I did all I could to make this budget work without adding anything to it that would be to the country’s detriment.”
Referring to economic recovery efforts, he said “the last thing Portugal needs, and the Portuguese deserve, is a political crisis at this moment.”
Portuguese President Marcelo Rebelo de Sousa, who has no executive powers but oversees the running of the country, had warned that he would call an early election if parliament did not approve next year’s government spending plan. He could make an official announcement next week, after consultations with political parties and others.
The government’s current four-year term is due to end in 2023.
Due to constitutional requirements that must be met before an election can be held, and taking into account the Christmas vacation period, the early election would probably take place in January.
That means a new 2022 spending program probably wouldn’t go before parliament before April.
The timetable consigns Portugal to months of political limbo just when the government was poised to fire up the economy after the COVID-19 pandemic by deploying 45 billion euros ($52 billion) in aid from the European Union.
On top of that, the emergence of smaller parties that have won seats in parliament in recent years, including a surging right-wing populist party, have muddied the political outlook, according to Francisco Pereira Coutinho, a politics professor at Lisbon’s Universidade Nova.
“This crisis is less worrying than what might be coming afterward ... with a more unstable and volatile political situation than we have now,” he said.
A popular mass vaccination campaign has helped Portugal, for the moment, largely contain COVID-19. The way things stand, with fewer than 1,000 new cases a day since mid-September and daily deaths in single figures, the pandemic shouldn’t hold up an election in the country of 10.3 million.
Recent opinion polls suggest the Socialist Party would easily win an election but would again fall short of a parliamentary majority.
Costa, the prime minister for the past six years whose political profile in the EU rose considerably during Portugal’s presidency of the bloc last year, is widely considered a candidate for an international job. A poor election result could be his cue to depart national office.
Both the Communist Party and Left Bloc lost votes in Portugal's 2019 election, with their decline in popularity blamed in part on their support for the more moderate Socialists.
The center-right Social Democratic Party, the main opposition, is caught up in a leadership battle and has largely failed to capitalize on the government’s predicament.