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FILE PHOTO: A view of the Portuguese Parliament during a debate on 2017 state budget in Lisbon, Portugal, November 4, 2016. REUTERS/Rafael Marchante

(reuters_tickers)

LISBON (Reuters) - Portugal's parliament rejected on Wednesday a government proposal to cut the social security tax companies pay on the minimum wage, in the first such defeat for the administration after two far-left allies opposed the move.

The minority Socialist government came to power at the end of 2015 with the backing of the Communists and Left Bloc with a promise of reversing austerity and returning more income to workers after a 2011-14 international bailout.

Parliament speaker Ferro Rodrigues said the Communists, Left Bloc and opposition centre-right Social Democrats voted against the measure. The Communists and Left Bloc have long objected to compensating companies for minimum wage rises and say the tax cut would only serve to encourage employers to pay lower wages.

The 1.25-percentage-point tax cut to 21.5 percent was designed to compensate for a rise in the minimum wage this year to 557 euros a month from 535. It had been agreed with employers and unions and was approved by the president last week.

"The government will now analyse the situation and naturally talk to its social partners and we will then see what results from that," Labour Minister Jose Vieira da Silva said after the vote.

While both leftist parties opposed the bill, the leader of the Left Bloc said on Tuesday she still backed the government and expected their political alliance to endure. Analysts have said the two parties' vote could be linked to positioning ahead of local elections this year.

The government had hoped the opposition centre-right Social Democrats would support the measure, but it withdrew backing in a bid to highlight government disunity.

(Editing by Louise Ireland)

Reuters