Portugal's parliament today voted to adopt a tough austerity budget for 2012 that leaders hope will rescue the country's crippled economy despite the risk of worsening social unrest.
Just days after thousands of workers descended onto Lisbon's streets to join a protest strike, lawmakers passed the unpopular budget package that cuts salaries, raises taxes and increases working hours for vast numbers of workers already squeezed by recession.
"This is doubtless the toughest budget since Portugal became a democracy" in 1974, Finance Minister Vitor Gaspar told lawmakers during the budget session. "This budget is necessary to renew the confidence of the Portuguese people, of the markets and of our international partners," he added.
The bill was backed by the centre-right majority in parliament but triggered bitter opposition from the unions and the socialist opposition who boycotted the vote.
Faced with massive popular discontent, the coalition opted to ease some measures after the budget bill passed a first reading in parliament on November 11. Thus the suspension of 13th and 14th month salary payments for civil servants will now affect only those earning more than €1,100 a month rather than €1,000. That concession will cost state coffers €130m which will be covered by higher taxes on capital revenues.
However the 30-minute extension of daily working hours for private sector employees was maintained in the final legislation. Also maintained were health and education spending cuts and a rise in VAT on a range of products including a leap from 13% to 23% for the restaurant trades which owners say could result in the closure of 21,000 eateries.
After Greece and Ireland in 2010, Portugal became the third euro zone member state needing a bailout in May when it could no longer raise fresh funds at sustainable rates on the financial markets.
Portugal was handed a €78 billion loan in exchange for a pledge to reduce its public deficit from 9.8% of gross domestic product in 2010 to 4.5% by the end of 2012. The government has conceded that the austerity measures are even tougher than those required under the EU-IMF bailout terms but says they are necessary to ensure its targets are met in the face of difficult economic conditions.
The Portuguese economy is expected to shrink by 3% in 2012 and unemployment set to rise to a record rate of 13.4%. Finance Minister Gaspar told parliament that the government was confident it would meet its target of cutting the deficit to 5.9% by the end of this year.
