Portugal’s center-right government on Monday announced sweeping tax increases and spending cuts in its budget fro next year, which promises a third year of recession and hardship under the strict conditions of a 78 billion euro (US$100 billion) bailout.
Portuguese Minister of Finance Vitor Gaspar said that failure to continue on the path of austerity could be catastrophic as about 2,000 protesters gathered outside Portugal’s parliament to demand the resignation of the government.
The budget includes the toughest tax hikes yet under the country’s bailout program, which will amount to up to three months’ wages for middle-income workers. It has ignited the greatest outpouring of anger so far in Portugal’s crisis.
“The margin of maneuver for unilateral decisions is non-existent; a rejection of the 2013 budget would mean a rejection of the bailout program,” Gaspar said, adding that the bailout plan was the country’s only choice.
“Asking for more time [under the bailout] would lead us to a dictatorship of debt and to failure,” he said.
The Socialist opposition party called the tax hike “a fiscal atomic bomb,” saying it denied the country growth and jobs creation.
Gaspar stuck to the Lisbon’s previous projection of a 1 percent contraction of GDP for next year, which would mark the country’s third year of recession, but which economists say is much too optimistic considering the hit to consumers from the budget.
Portugal entered its deepest recession since the 1970s this year, when GDP has been seen slumping 3 percent, pushing unemployment to record highs near 16 percent.
Some economists say that the measures, which also include pension cuts, a financial transaction tax and higher property taxes, could push Portugal into a recessive spiral like Greece, further undermining Europe’s German-inspired austerity drive for the euro’s highly indebted countries.
Gaspar said new taxes would amount to 4.3 billion euros next year, representing 80 percent of next year’s austerity measures, but rejected that it would lead to a recessive cycle.
The budget comes after the Portuguese government last month announced a rise in social security contributions, which it subsequently dropped after mass protests erupted. Opposition to the alternative tax measures is set to be equally strong.
Even conservative Portuguese President Anibal Cavaco Silva criticized the budget measures.
“In the current circumstances, it is not correct to demand of a country being subjected to a budget adjustment process that it meets the targets at any cost,” Cavaco Silva wrote on his Facebook page.
The government spent the weekend and Monday morning locked in an internal debate on the possibility of finding more areas for spending cuts, but not much had changed from the previously announced plans to hike taxes.
The budget also includes measures to help the economy, like allowing small and medium-sized companies to defer value-added tax payments until after they had booked receipts from customers — a measure that should boost cash flow and ease their debts.
This year’s budget performance was undermined by tax revenues falling short of expectations as the recession deepened and unemployment rose beyond government forecasts.