Restaurants a test of Portuguese appetite for austerity

By Axel Bugge LISBON (Reuters) - Winning the vote of the cooks and waiters dishing out succulent grilled fish and spicy chicken at Portugal's restaurants could make all the difference in the country's tight Oct. 4 election. The restaurant sector is a huge provider of jobs in this food-worshipping southern European nation. It was also among the hardest hit by austerity imposed by centre-right premier Pedro Passos Coelho as part of efforts to shake off the sovereign debt crisis that also afflicted Spain, Greece and Cyprus. Thousands of eateries went broke amid the largest tax hikes in living memory as many recession-hit Portuguese were forced to do the unthinkable and forego eating meals out. So with opposition Socialists pledging to reverse the tax hikes, the mood behind the serving hatch will be a key test of whether Portuguese are ready to complete the austerity cure. "The VAT increase was the last straw for many businesses," Jorge Costa, who runs the traditional 'Leitaria Anunciada' restaurant in central Lisbon, said of a 2012 hike in value-added sales tax to 23 percent from 13 percent which Passos Coelho's government said was needed to plug a soaring budget deficit. "From one moment to the next we were without clients." In a painful overhaul of business practices, Costa scraped through the crisis by firing three of his five staff -- leaving just himself and his cook -- and adapting his menus to put the emphasis more on quality. Others were also downsizing. The result was the loss of some 30,000 restaurant jobs, a 20 percent fall in sales between 2008 and 2013 and the closure of 10,000 restaurants - just under 12 percent of the country's total of 74,660 establishments. That mirrored the fate of the wider economy, which shrank eight percent over the same period while unemployment leapt to around 12 percent now from under eight percent in 2008. National debt has doubled to hit 130 percent of output last year. With an economic recovery finally taking root in 2014 and accelerating now, Passos Coelho wants to convince voters that a vote for him is a bet on stability that will allow investment to take off and generate more growth. Debt is due to fall to a still colossal 125 percent of output by the end of the year. But with polls showing Pedro Passos Coelho's coalition stuck in a dead heat with his Socialist challenger Antonio Costa, the jury is still clearly out. "The sector went through a perfect storm," said Jose-Manuel Esteves, director-general of the AHRESP hotel and restaurant lobby group, describing Passos Coelho's refusal to cut taxes if re-elected as an "affront and provocation" to restaurateurs. Passos Coelho argues the tax revenues will help reduce Portugal's deficit and national debt pile, thus reassuring investors. But Esteves for one says that stability alone is not enough and endorses the Socialists' platform of quickly cutting VAT for restaurants back down to 13 percent. ADAPT AND SURVIVE? That will appeal to many others in a sector which still employs about 211,200, one of the biggest job sectors in Portugal, and which generates about 5 percent of gross domestic product on revenues of 6 billion euros ($6.8 billion). Still, the broadening economic recovery and, not least, soaring tourism, has already begun to benefit many in the restaurant sector who adapted during the crisis by offering quality meals at reasonable prices. At 'Rubro', off Lisbon's main avenue, co-owner Luis Morais Pereira said his restaurant also suffered but introduced changes to get through the crisis and is now even thriving. "What we did was reformulate our menu, to offer consumers more competitive alternatives, lowering the average ticket price," said Morais Pereira as office-workers streamed in for lunch of charcoal-grilled meat. Like other restaurants that survived, or new ones that have begun to open in the past year offering niche products like quality hamburgers, Rubro has stuck to doing the basics well. "We are an Iberian restaurant, we offer wine, tapas and very good, matured grilled meat. I think the key to our success is the simplicity and quality of the ingredients at very good value," Morais Pereira said. He declined to say which he would vote on Oct. 4. But regardless of the outcome of the election, Rubro has already decided to open two new restaurants this year -- one to take advantage of growing tourism in Lisbon and another in the upmarket resort of Cascais not far from the capital. That is a formula not everyone will be able to replicate. "I don't believe that a restaurant will survive well unless it is located in a tourist zone," said Costa, thankful his "Leitaria Anunciada" is in a tourist area that attracts Spanish, German and French visitors. An as yet undecided voter, Costa hopes that all politicians will stop treating businesses simply as a "point of collecting tax payments" and instead see their value as generators of jobs. Such frustration with Portugal's leadership is common, with many -- especially those not in a lucrative tourist spot -- doubting any politician will really make a difference. At the old-fashioned, family-owned 'Adega do Tio Pepe' restaurant, Spanish-born Jose Suarez says he has cut staff and opening hours and will probably sell soon, having no stomach to continue with high taxes and dwindling clients, and uninclined to put his faith in the Socialists either. "(Antonio) Costa talks and talks, and I don't know if the prime minister, Mr. Passos Coelho is any good or bad," he said. ($1 = 0.8876 euros) (Editing by Mark John)