Portugal unveils new austerity measures

4 Oct 2012, 7:16 am   -   Source: AAP
Tens of thousands of Portuguese took to the streets of Lisbon in a new protest against austerity with more mobilisations expected. (AAP)

Tens of thousands of Portuguese took to the streets of Lisbon in a new protest against austerity with more mobilisations expected. (AAP)

New austerity measures, including a hike in income tax, have been announced by the Portugese government.

The Portuguese government has announced a generalised income tax hike, one of several new austerity measures meant to replace earlier proposals that met with stiff popular opposition.

At a news conference, Finance Minister Vitor Gaspar unveiled a four per cent extraordinary tax and said that Portugal's income tax brackets would also be reduced from eight to five.

The average tax hike would rise from 9.8 per cent in 2012 to 13.2 per cent in 2013, the minister said without indicating how much extra revenue would be raised by the measure.

"The adjustment is harder than we anticipated," Gaspar said, as he also revealed that the unemployment forecast for 2013 had been raised to 16.4 per cent from a previous forecast of 16 per cent.

New measures also include new levies on capital gains and a financial transaction tax, though details of these moves have yet to be finalised, the minister said.

The new budget measures, which are to be presented to parliament on October 15, were shown to European Commission President Jose Manuel Barroso on Monday.

Reassured by the plan, Barroso, a former Portuguese prime minister, said he was in favour of paying out the latest instalment of Portugal's 78 billion euros ($A99 billion) bailout.

Barroso added that he expected eurozone partners to follow suit.

The granting of this new slice of aid is contingent on Portugal passing measures worth 4.3 billion euros in the 2013 budget.

In a previous effort to meet the requirement, conservative Prime Minister Pedro Passos Coelho proposed a hike in welfare charges paid by employees on their monthly paychecks, a move designed to inject the country's social safety nets with much-needed funds and ease the hiring burden on employers.

Gaspar blamed the anticipated increase in unemployment on this abandoned effort to ease hiring costs.

While the government's steering of Portugal still has the confidence of creditors, over the weekend, tens of thousands of Portuguese took to the streets of Lisbon in a new protest against austerity with more mobilisations expected.

Spending cuts and economic reforms have caused a recession, with the economy shrinking by 1.2 per cent in the second quarter, much faster than the 0.1 per cent rate in the first quarter.

The contraction is expected to reach 3.0 per cent for the whole year.

Earlier in the day the Portuguese debt agency successfully completed a bond exchange, buying up sovereign bonds set to mature in 2013 and in return emitting new bonds with a 2015 expiry date at lower rates.

The Portuguese government has not attempted auctioning bonds outright on the markets since it requested a bailout in Spring 2011 and has only carried out short-term operations.

Gaspar said the exchange "without question marks the return of Portugal to the public debt markets."

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