Portuguese gov't announces tough budget for 2013

The Portuguese government on Monday announced a tough budget for 2013 which highlights sharp tax hikes. Finance Minister Victor Gaspar reiterated that the country has no leeway to change the basic parameters of the austerity budget document, "which will test the viability of the country." The supplement of 4 percent will remain on income tax which will go from the current 9.8 percent to 13.2 percent and spending cuts will account for less than 20 percent of the adjustments. The government argues that it sees no other way than to "continue austerity until the expiry of Portugal's Economic and Financial Assistance Program (PAEF) and the difficult path towards fiscal consolidation which will inevitably involve sacrifices for all Portuguese." Gaspar went on to say that he is confident that Portugal will need the help of the troika "shortly." According to Gaspar, the fiscal effort required in 2013 will amount to 4.3 billion euros (5.6 billion U.S. dollars) and will be distributed "fairly" between labor income and capital, and between the public and private sectors. He said a "comprehensive set of consolidation measures" which have an "estimated impact of 4.3 billion euros will include the partial replacement of Christmas holiday subsidies and tax revenues." The Portuguese economy is not in danger of entering recessionary spiral, said Gaspar, stressing the importance of exports to pull the country out of the current crisis. "So far there is no evidence for Portugal in a recessionary spiral," the minister said while presenting next year's budget in the Ministry of Finance in Lisbon. "Indeed, what has happened so far is that domestic demand has contracted more than anticipated but the contribution from external trade or our export growth has been higher than expected so these two effects has been compensated," said Gaspar. "For the future, it seems to me, this external demand factor will grow boosted by improved financing conditions of our economy that we have seen in these past few weeks where not only has the Treasury managed to fund itself at favorable interest rates, but also some large Portuguese companies have seen a return to the bond market," he said. Portugal's economy will "shrink by 1 percent next year, while the unemployment rate will climb to a new high of 16.4 percent," the minister said.