Portugal adopts hotly protested austerity budget

AFP-JIJI

The Portuguese Parliament adopted on Wednesday a 2013 austerity budget that includes Draconian tax increases required by international creditors, in the teeth of swelling street protests.

The ruling center-right coalition had the votes to push the budget through despite opposition from the Socialist and extreme-left parties.

The tax increases, which are aimed at curbing the swollen public deficit, come as the country is already suffering through a biting recession.

Prime Minister Pedro Passos Coelho is determined to cut Portugal’s public deficit to 4.5 percent of gross domestic product next year from a target of 5.0 percent this year.

His government is seeking €5.3 billion ($6.9 billion) in savings, of which 80 percent was to come from higher taxes.

The average rate of income tax would rise from 9.8 percent to 13.2 percent.

In a speech Tuesday, the prime minister also pointed to a new approach in the longer term, saying that spending cuts have reached the limit of what is feasible and that the entire role, responsibilities and architecture of the state have to be reformed.

Portugal’s deficit targets have been relaxed in agreement with the International Monetary Fund and European Union, which extended a €78 billion ($101 billion) bailout in May 2011.

But even after extra austerity measures this year, the deficit is expected to start 2013 at 6 percent.

“The budget is very demanding and requires heavy sacrifices of the Portuguese people,” the prime minister told Parliament on the eve of the vote. But “it serves the vital goal of helping us arrive safe and sound in our adjustment program.”

Socialist Party Secretary General Antonio Jose Seguro denounced “excessive austerity” in the budget. “It is a budget destined to failure,” he said.

The IMF warned last week that risks to Portugal’s rescue program had climbed significantly after a “strong start.”