ARRUDA DOS VINHOS, Portugal – The last thing the Portuguese will go without is a hearty meal at one of the country’s thousands of restaurants to enjoy specialties like suckling pig, grilled sea bass or ‘bacalhao’ cod.
That could be about to change as Portugal wallows in its deepest recession since returning to democracy in the 1970s, weighed down by harsh austerity imposed by a 78-billion-euro bailout from the European Union and IMF.
As the Portuguese adopt previously unheard of practices like skipping traditional family lunches out at the weekend or eating sandwiches at their desks instead of enjoying full, hot meals at restaurants, usually accompanied by wine, the impact is visible everywhere.
“I have never seen it as bad as this in the 18 years I have been here,” said Rogerio Oliveira, whose ‘O Pote’ restaurant in the town of Arruda dos Vinhos had guests at just two tables on a Saturday lunch-time in January.
Oliveira’s restaurant, where his wife cooks and his son waits tables, is typical of many Portuguese dining establishments in that the entire family’s livelihood is at stake.
“I will try everything possible to survive. This is all I’ve got,” said Oliveira, 59, across the bar counter where bundles of garlic hang and locally-made wines line the shelves.
At first sight, the troubles for Portugal’s restaurants may seem small compared to the country’s huge economic challenges in overcoming its massive debts, which will reach 105 percent of economic output this year, and riding out the euro zone crisis.
But, considering that restaurants, coffee shops, bars and bakeries together represent the fourth-largest source of jobs in Portugal, the eateries’ troubles spell a significant risk for the economy. They have around 7 billion euros in sales a year, the equivalent of about 4 percent of GDP.
TAX RISE ‘LAST STRAW’
That didn’t stop the government from raising value-added tax on restaurants to 23 percent from 13 this month, rubbing salt in the wounds as the sector already saw a massive slump in demand last year.
“We don’t understand this decision. It is simply inexplicable,” said Ana Jacinto, deputy secretary-general of the AHRESP lobby group that represents the hotel and restaurant sector.
“Many restaurants are already suffocating or were technically bankrupt, higher value-added tax will be the last straw that pushes them out of business,” she said.
AHRESP has warned that 21,000 restaurants could be forced to shut down, leaving 45,000 people out of work. There are an estimated 90,000 restaurants in Portugal, employing about 350,000 people out of a population of 10.5 million.
That is already happening — in Arruda dos Vinhos four restaurants have shut down since the start of the year — and restaurants have started to lay off waiters or shut down across the country as the Portuguese cut their eating-out habits.
“Instead of ordering meals, people just go for soup and a sandwich these days,” said Luis Esteves, manager at ‘A Bela Ipanema’ in Lisbon. His restaurant raised prices for the first time in seven years after the increase in taxes.
The industry says the strategy could backfire by increasing the ranks of those who claim unemployment benefits as dining-out slumps. Portugal’s jobless rate is already above 12 percent, its highest since the early 1980s, and is expected to rise further.
“The government made a simple mathematical calculation — it is convinced that raising value-added tax will increase revenues,” said Jacinto.
“It forgot that the restaurants that can’t manage will shut, which means more unemployed. Then, there won’t be a rise in revenues but an increase in expenditures.”
The government declined to answer questions on the likely impact of the VAT measure. But it shows no intention of backing down despite heavy lobbying by the sector, including an appeal to the president to intervene this month.
Prime Minister Pedro Passos Coelho has said the entire country has to make sacrifices to drag Portugal out of its crisis and ensure there are enough revenues for the tough budget goals to be met.
“I am convinced that we will meet the budget goals for 2012 and as of 2013 I am confident that we will have ridden out the storm,” he said recently.
RESTAURANTS TURN TO GREY ECONOMY
Another concern is that restaurants may simply turn to the informal economy and not levy any value-added tax at all, further sapping the government of precious revenues.
A study this week showed the grey economy had already expanded in 2010 — before austerity imposed by the bailout started last year — to a quarter of economic output, only lower than Greece and Italy in western Europe.
Some economists say the squeeze on restaurants is justified by the fact that Portugal’s real economic challenge is to boost competitiveness by cutting costs and raising savings.
“There is a need to cut consumption and raise savings, this is a way of doing that,” said Cristina Casalinho, chief economist at Banco BPI. “The main short-term worry is to meet budget goals.”
That leaves restaurants with little choice other than to hope for the best, that clients don’t turn away altogether, as they adopt marketing tricks like giving away free lottery tickets with meals or offering cheaper meals during “anti-troika hour” (the troika of bailout lenders are the European Commission, the European Central Bank and the IMF).
“To be honest, I think it will be hard. Just look around, this is half empty, it wasn’t like this before,” said Manuel ‘Manolo’ Calvino, owner of the ‘Buraco,’ or Hole, snack bar in Lisbon.
“Over lunch, I ask my usual clients why they are not coming in any more for breakfast and they tell me they’ve decided to eat at home.”