Portuguese leftists signal they will back budget bill

October 12, 2016 11:38 AM EDT

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By Andrei Khalip

LISBON (Reuters) - The two left-wing allies of Portugal's minority Socialist government signaled on Wednesday they would support the general outlines of a 2017 budget proposal which aims for more deficit cuts, but seek "improvements" before the final vote.

The center-left government, which is backed in parliament by the Left Bloc and the Communist Party, is due to present the draft budget to parliament on Friday.

The bill has to be voted through in a first reading on Nov. 4, followed by about a month of detailed discussions at committee level.

Treasury Secretary Ricardo Mourinho Felix told Reuters last week the government aims to cut the budget deficit to just under 2 percent of GDP in 2017 from around 2.5 percent this year, in an effort to persuade credit rating agencies to maintain their ratings and lift investor confidence.

The left-wing parties met Finance Minister Mario Centeno in parliament on Wednesday.

"The first-reading debate will be an important moment in this negotiating process, but it will not end there, it will continue on specifics," Left Bloc bench leader Pedro Filipe Soares told reporters.

"We will seek to improve the budget proposal in parliament after the first vote."

Communist bench leader Joao Oliveira said his party "is not drawing any red lines in the discussions" and also saw "opportunities to improve the bill" in later discussions.

Their remarks suggest the first-ever alliance of the center-left Socialists with the hard left, nearly a year old, shows no sign of a split. Some analysts had feared a rift could open up under pressure from Brussels for more fiscal consolidation.

The government has proposed raising state pensions above the inflation rate, but by less than an increase sought by the left.

The government plans to gradually end an income tax surcharge introduced during the 2011 debt crisis, but to increase some indirect taxes, such as on products with high sugar content, to make up for the difference.

The center-right opposition has accused the government of creating the illusion of tax cuts and ignoring weakening investment.

(Additonal reporting by Sergio Goncalves; editing by Axel Bugge and Andrew Roche)

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