By Nick Mann | 16 October 2012
Portugal’s government has warned of the consequences of failing to adhere to the tough package of spending cuts and tax increases announced in its draft 2013 budget yesterday.
The plans include €430bn of tax rises, with the average rate of income tax increasing from 9.8% to 13.2%, and €270bn in government spending cuts. Measures include axing 10,000 public sector jobs – 2% of the total; cutting state pensions; and reducing unemployment benefits by 6%.
Together, the changes are expected to amount to a fiscal consolidation of 3.2% of Portugal gross domestic product next year. This is intended to help the country reduce its budget deficit from the 5% of GDP it is targeting this year to 4.5% next year, in line with limits agreed under the terms of its €78bn bailout.
Portugal’s original 2011 agreement with the ‘troika’ international lenders – the European Union, European Central Bank and International Monetary Fund – was to reduce its deficit to 3% of GDP by 2013. But the country was last month given an extra year to reach this goal.
Portuguese finance minister Vitor Gaspar said the plans announced yesterday were the ‘only ones possible’ and had to be carried through in order to meet the terms of the bailout. ‘We do not have any leeway,’ he said. ‘Jeopardising the budget is jeopardising the adjustment programme.
‘The level of public debt, which will increase above 120% of GDP in 2013, does not allow additional margin.’
According to Gaspar, the measures will set Portugal on the path to reducing its deficit to 0.5% of GDP by 2015.
However, the Portuguese economy, which is already in recession, is expected to shrink by 1% next year and its unemployment rate was forecast in the budget to reach 16.4% of the active working population.
This prompted the opposition Socialist Party leader António José Seguro to reportedly dub the budget package ‘a fiscal atomic bomb’, while the main trade union, CGTP, said it was ‘an attack on the dignity of the people’, AFP reported. Yesterday’s announcement triggered street protests outside the Parliament building in Portuguese capital Lisbon. A national strike against the government’s austerity programme has been called for November 14.
