Gaspar said he also intended to enact spending cuts worth ⿬2.7 billion next year, partly by laying off 2 percent of the country's 600,000 public employees.

The tax increases are particularly hard on Portugal's middle class. Due to the changes, someone earning ⿬41,000 ($53,000) a year, for example, will pay 45 percent income tax from Jan. 1 compared with 35.5 percent now.

Most workers fall into the ⿬7,000-⿬20,000 annual income bracket. Those people will pay 28.5 percent income tax, up from 24.5 percent now.

Previously, the top rate of tax of 46.5 percent was for workers or married couples who together earned over ⿬153,300 a year. That top rate will be lowered to cover single or joint earnings above ⿬80,000, which will be taxed at a rate of 48 percent. That income will also be subject to a special "social solidarity" tax of 2.5 percent.

Also, there will be a one-off 4 percent surcharge tax on everyone's earnings in 2013.

Capital gains tax will rise to 28 percent from 25 percent. Companies making annual profits over ⿬7.5 million will pay an extra tax of 5 percent on top of their 25 percent corporate tax.

The budget foresees an economic contraction of 1 percent next year, with the jobless rate rising to 16.4 percent.

The center-right coalition government has an overall majority in Parliament and can force through the austerity package. However, the broad political and social consensus around the terms of last May's bailout â¿¿ which committed Portugal to spending cuts and economic reforms â¿¿ has unraveled.

The leader of the main opposition Socialist Party, Antonio Jose Seguro, said the measures were "a fiscal atomic bomb" that will wreck the economy.

Trade unions also reacted angrily.

The General Confederation of Portuguese Workers, the largest union group with some 600,000 members, has already announced a general strike against austerity on Nov. 14.

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