Portugal adopts hotly protested austerity budget

The Portuguese parliament adopted on Wednesday a 2013 austerity budget that includes draconian tax increases required by international creditors, in the teeth of swelling street protests. The country's ruling centre-right coalition had the votes to push the budget through despite opposition from the Socialist and extreme left parties. Several thousand people later gathered in front of parliament to protest the tax hikes, calling out "Shame!" and "Down with the traitors!" The tax increases, which are aimed at curbing the swollen Portuguese public deficit, come as the country is already hit by a biting recession. A general strike was also planned for November 14, coinciding with similar action in neighbouring Spain, under the slogan "Against Exploitation and Impoverishment." Prime Minister Pedro Passos Coelho is determined to cut Portugal's public deficit to 4.5 percent of gross domestic product next year from a target of 5.0 percent this year. His government is seeking 5.3 billion euros ($6.9 billion) in savings, of which 80 percent was to come from tax rises. The average rate of income tax would rise from 9.8 percent to 13.2 percent. In a speech on Tuesday the prime minister also pointed to a new approach in the longer term, saying that spending cuts had reached the limit of what was feasible and the entire role, responsibilities and architecture of the state had to be reformed. Portugal's deficit targets have been relaxed in agreement with the International Monetary Fund and European Union, which extended a 78-billion-euro ($101-billion) bailout in May 2011. But even after extra austerity measures this year, the deficit is expected to start 2013 at 6.0 percent. "The budget is very demanding and requires heavy sacrifices of the Portuguese people," the prime minister told parliament on the eve of the vote. But "it serves the vital goal of helping us arrive safe and sound in our adjustment programme". Opposition Socialist Party secretary general Antonio Jose Seguro denounced "excessive austerity" in the budget. "It is a budget destined to failure," he said. The Socialist's rejection of the budget dealt a blow to a political consensus on the international programme that is often touted by the country's rescuers. The IMF warned last week that risks to Portugal's rescue programme had climbed significantly after a "strong start". "Politically, the broad-based consensus that has buttressed the programme to date is being tested," it added. "Social and political resistance to adjustment has heightened." Portugal's leader, who is weathering growing criticism of the budget's tax increases and its social and economic impact, has said he has no choice: the state has reached its limit in cutting spending. Only an "ambitious reform" of the government could now prevent Portugal from being forced to ask for a second bailout, Passos Coelho said. In the streets, discontent is growing, with official forecasts tipping a record unemployment rate of 16.4 percent next year. Hundreds of thousands of people spilled into the streets in mid-September and many citizens' groups called for a rally against "criminal" budget measures outside the parliament on the afternoon of the budget vote.