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TheStreet Open House

Portugal To Unveil More Austerity In Budget

BARRY HATTON

LISBON, Portugal (AP) â¿¿ Portugal's government is taking the bailed-out country deeper into austerity, announcing Monday sharp tax increases next year that risk worsening a recession and stoking public discontent.

The draft budget for 2013 is one of the harshest in the country's recent history and will take away the equivalent of a month's wages from many workers.

The government says the measures are needed to cut the national debt as Portugal strives to restore its financial health. More than a decade of meager growth compelled Portugal to ask for a ⿬78 billion ($101 billion) rescue last year to avert bankruptcy.

But critics say the latest batch of austerity measures will choke the economy, which is forecast to contract for a third straight year in 2013, and push higher the unemployment rate which already stands at a record 15.9 percent.

As in other heavily indebted European countries, public hostility to cutbacks is running high as hard-hit workers balk at falling living standards. The coalition government, too, is showing signs of strain amid mounting criticism as leading figures in the governing parties have expressed deep reservations about the strategy.

Announcing "very significant" tax hikes, Finance Minister Vitor Gaspar said Portugal had no choice because it is locked into a three-year debt reduction program by its international creditors in return for the bailout.

"We have no room for maneuver," Gaspar told a news conference. Portugal "has to stay the course," he said.

With the government struggling to balance its books due to a slowdown in consumption and consequent drop in tax revenue, the bailout lenders ⿿ the International Monetary Fund, European Central Bank and European Union ⿿ recently eased Portugal's budget deficit target for this year to 5 percent from 4.5 percent of the country's ⿬171 billion ($221.8 billion) economy. The 4.5 percent goal was pushed back to next year. In 2010 the deficit was 10.1 percent.

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