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article imagePortugal plans for more austerity in 2013 budget

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By Ken Hanly     Oct 15, 2012 in Politics
Lisbon - The Portuguese budget for 2013 calls for more austerity, higher taxes, and wage cuts. The harsh measures could plunge the country into a deeper recession and fuel public discontent.
Last year Portugal asked for and received a $101 billion bailout but now is saddled with austerity measures regarded as necessary to cut the national debt.
Critics of the measures argue that the cuts will plunge the economy even further into recession in 2013, for a third straight year. They also claim that the unemployment rate, already at 15.9%, will go even higher.
Public hostility to the measures will also increase, as many people face falling living standards. Even some figures in the government have expressed reservations about the new measures. The Finance Minister, Vitor Gaspar, claims that Portugal really has no choice since it is locked into a three year program of debt reduction by the terms of the bailout agreement. Gaspar said that Portugal simply had to stay the course. Gaspar claims: "We have no room for manoeuvre. Asking for more time [under the bailout] would lead us to a dictatorship of debt and to failure."
The three bailout lenders, The IMF, European Central Bank, and EU, reduced the budget deficit target for this year to 4.5% from 5%. Gaspar announced spending cuts of 2.7 billion Euros for next year. This will include laying off 2% of government workers.
The tax hikes will have a devastating effect on Portugal's middle class. A person earning $53,000, 41,000 Euros, a year, will see the tax rate move up from 35.5%, already high, to 45%. Even workers who earn between 7,000 and 20,000 Euros will see their tax rates rise from 24.5% to 28.5% next year. A new top tax rate of 48% will be levied on single or joint incomes of 80,000 Euros or over, plus a special added 2.5% solidarity tax, resulting in an effective tax rate of over 50%.
In 2013 there will be an additional 4% surcharge on all earnings. Capital gains taxes, and corporate taxes are also increasing. The budget predicts a contraction in the economy of one per cent next year and the jobless rate increasing to 16.4%.
While the center-right coalition can force through these measures through the assembly since it has a majority, the consensus on the terms of the bailout appears to be breaking down. The main opposition Socialist Party said that the measures would wreck the economy. Trade unions have also reacted angrily.
The General Confederation of Portuguese Workers, the largest trade union group, has announced a general strike for November 14th to protest the austerity measures. The group has about 600,000 members. Even before the new budget there have been demonstrations that have attracted tens of thousands of people.
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