Portugal's Parliament today approved unprecedented tax increases.

This is despite a broad public outcry and concerns that the latest austerity package will prolong the country's recession.

The coalition government used its overall parliamentary majority to pass its 2013 budget.

All opposition parties voted against the deficit-reduction measures which will cost most workers the equivalent of at least a month's income next year.

The tax increases are especially hard on Portugal's middle class. Due to the changes, someone earning €41,000 a year will pay 45% income tax from January compared with 35.5% now.

Most people fall into the €7,000-20,000 annual income bracket. Those will pay 28.5% income tax, up from 24.5%.

Previously, the top rate of tax of 46.5% 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%.

That income will also be subject to a special "social solidarity" tax of 2.5%. There will also be a 3.5% surcharge tax on everyone's earnings in 2013.

Trade unions and business leaders complain the spending plan does not do enough to revive an economy that is headed into a third year of recession in a row. Hundreds of people protested against the budget outside the parliament building in Lisbon.

Portugal, like other euro zone countries Greece and Ireland, needed a hefty financial rescue to spare it from bankruptcy. It took a €78 billion bailout 18 months ago and in return promised to reduce its heavy debt and implement economic reforms.

Portugal's bailout creditors - the other members of the group of 17 European Union countries that use the euro, the European Central Bank and the International Monetary Fund - are keen to avoid Portugal becoming another trouble spot like Greece and have praised the government's strategy. The government said its hands are tied.

The three-year bailout deal locks Portugal into cutting its deficit, otherwise its creditors will not give it money. Portugal has so far received €61 billion of the bailout funds.

Finance Minister Vitor Gaspar, who has described the tax hike as "enormous," told lawmakers the budget is "another determined step toward recovery." It will help restore investor confidence in Portugal, allowing it to return to international credit markets as planned in September 2013, he said.

The government is aiming to increase income tax revenue by 30% next year while enacting spending cuts worth €2.7 billion. The goal is to reduce the budget deficit to 4.5% next year, down from a targeted 5% this year.

The government predicts an economic contraction of 1% in 2013, though the Paris-based Organisation for Economic Cooperation and Development estimated today that it will be 1.8%. The government forecasts that the jobless rate, currently at 15.7%, will climb to a record 16.4% next year.

The country's main opposition parties, the second-largest trade union confederation and private sector association initially gave their blessing to the bailout agreement. But that consensus has evaporated amid rising unemployment and hardship, leaving the coalition government isolated.