Portugal's Socialist PM sworn in, president warns on budget

By Axel Bugge LISBON (Reuters) - Portugal's first far left-supported Socialist government was sworn in on Thursday, promising to end austerity as the president said he would use all his powers to guarantee the country adopts a disciplined budget. Prime Minister and former Lisbon mayor Antonio Costa took office after a tumultuous few weeks during which his party and the far left toppled a short-lived centre-right government and turned what first appeared as an Oct. 4 election defeat into victory. Costa promised he would respect European budget rules but that consolidation of public accounts would become "healthier." "The government's programme is a clear bet on turning the page on austerity," he said in his inauguration speech. The political upheavals prompted concerns that an economic recovery could be undermined and is viewed by some analysts as Portugal's most critical moment since the 1974 Carnation Revolution, when a right-wing dictatorship was overthrown and democracy ushered in. Costa's Socialists will rely on the far left Communists and Left Bloc to pass policies and laws in parliament, in an alliance that critics say is too loose to last through the full four-year term, potentially extending political uncertainty. President Anibal Cavaco Silva has signalled many times in recent weeks that he is uneasy about the Communist and Left Bloc's past opposition to Portugal's commitments to European budget rules. He alluded to those misgivings on Thursday. "I do not abdicate from any of the powers vested in the president," said Cavaco Silva, who cannot dissolve parliament, but has the power to sack the government and delay or veto some policies passed by parliament until his term ends in March. "I will do everything so that the country stays on the path of economic growth, job creation and preserves external credibility." After years of sweeping austerity under a bailout Portugal was forced to seek in 2011, the Socialists want to roll back many measures, including restoring public sector wages that were cut, raise the lowest public pensions, reintroduce four public holidays and raise the minimum wage. The new government's most urgent task will be to present a budget for 2016. The country is already several weeks late in sending the blueprint to Brussels. "On an Excel (spreadsheet) everything always works well, but the problem is that often in practice the economy doesn't react like expected," said Joao Pereira Leite, head of investment at Banco Carregosa. Pereira Leite said the big question for the new government would be whether its policies increased the budget deficit and debts. "Portugal has such a high level of debt that it cannot accumulate more debt as it would become unsustainable," he said. The Socialists have also promised to cut value added tax for the restaurant sector and eliminate extraordinary income tax hikes introduced during the crisis to plug the budget deficit. (Additional reporting by Andrei Khalip, Sergio Goncalves and Daniel Alvarenga; editing by John Stonestreet)