There were noisy protests outside the parliament building in Lisbon last night after the Portuguese government revealed details of its draft budget for 2013, the toughest for many years.

It includes both €2.7bn worth of spending cuts and an average income tax rise of 3.4%.

Portugal’s Finance Minister Vitor Gaspar said the proposals were the only way the country could meet the terms of its €78bn bailout.

"The margin of manoeuvre for unilateral decisions is non-existent, a rejection of the 2013 budget would mean a rejection of the bailout programme," Mr Gaspar said.

"Asking for more time (under the bailout) would lead us to a dictatorship of debt and to failure."

Opposition Socialists called the tax hike "a fiscal atomic bomb", and said it denied the country growth and jobs creation.

Mr Gaspar stuck to the government's previous projection of a 1% contraction of GDP in 2013, which would mark the country's third year of recession.

However, economists say it is much too optimistic considering the hit to consumers from the budget.

Joao Duque, a professor who heads the School of Economics and Management at Lisbon's Technical University, was highly critical of the budget.

"I feel like a guinea pig in an economics experiment," said Mr Duque.

"The measures will accentuate the crisis we already face, that is evident."