Portugese lawmakers debate more austerity measures

By Barry Hatton

Associated Press

Published: Thursday, Nov. 10 2011 8:51 a.m. MST

Portuguese Finance Minister Vitor Gaspar, left, listens to Portuguese Prime Minister Pedro Passos Coelho, right, during the 2012 state budget debate, at the parliament in Lisbon, Thursday, Nov. 10, 2011. The parliament started debating the government's plan to introduce more pay cuts and steep tax hikes next year, while the country is struggling to restore its fiscal health despite a euro78 billion ($106 billion) bailout earlier this year.

Armando Franca, Associated Press

LISBON, Portugal — Portugal's prime minister said Thursday he won't give any ground in his drive to achieve an unprecedented reduction in his bailed-out country's debt levels through a raft of tax hikes and spending and pay cuts.

Portugal is one of the 17-nation eurozone's weakest economies and needed a €78 billion ($106 billion) financial rescue earlier in May to head off looming bankruptcy.

The Portuguese will next year pay more sales tax, income tax, corporate tax and property tax. At the same time, welfare entitlements are being curtailed.

Also, private sector employees will have to work an extra 30 minutes a day while state employees earning more than €1,000 ($1,360) a month won't get their Christmas or vacation bonus, each equivalent to roughly a month's pay.

The expanded austerity program is part of the center-right coalition government's 2012 state budget proposal, which Parliament began debating Thursday.

"Nobody will be cut any slack in enacting this budget program," Prime Minister Pedro Passos Coelho told lawmakers, some of whom urged him to change course.

Passos Coelho said he aims to cut public spending to 43 percent of annual gross domestic product by 2014, down from the current 50.6 percent.

Portugal has to meet debt-reduction targets to qualify for the financial aid, which is disbursed in batches.

The government has enough votes to ensure its budget proposals are approved. The main opposition Socialist Party also has endorsed the terms of the bailout program.

Despite the broad political consensus, Portugal has struggled so far this year to meet its budget deficit goal of 5.9 percent this year, down from 9.8 percent in 2010.

It has taken one-off measures to raise revenue, including levying a 50 percent tax on public and private sector Christmas bonuses next month and transferring private bank pension funds to state coffers. European officials say they expect Portugal to meet the deficit target.

Another major problem for Portugal is how to generate growth that will help ease its debt woes.

Portugal is in a double-dip recession which is forecast to worsen next year. The European Commission predicted Thursday that the Portuguese economy will contract by 3 percent in 2012 — the worst performance in the eurozone.

The jobless rate is predicted to reach a record 13.4 percent.

The government plans labor reforms to make Portugal more competitive. They include more flexible working hours and legislation making it easier to hire and fire workers.

Trade unions have balked at some of the changes and have announced a general strike on Nov. 24.

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