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18 October 2011

WSJ: Portugal unveils deep cuts

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Portugal's government unveiled harsh new austerity measures to control its budget deficit over the next two years, as it seeks both to convince European peers that it has the political will to keep the promises it made when it was bailed out, and to avoid Greece's fate.

The new budget's tax-increase and spending-cut elements would reduce the government deficit by six percentage points of GDP from what it would have been under current policies, Finance Minister Vitor Gaspar said in an interview.

The measures announced Monday include unpopular moves, such as eliminating bonuses equivalent to two months of salary, in 2012 and 2013, for public workers and retirees making more than €1,000 a month ($1,390). They will give private-sector companies the option of implementing a 30-minute-a-day increase in working hours without any additional pay. The government will also keep a 5 per cent salary cut in the public sector for some workers next year, a measure it implemented in 2011. The cuts are tough compared with those applied by other eurozone peers such as Spain and Italy. But like Greece and Ireland, Portugal is left with little option if it is to cut its public budget deficit by the amount required under its bailout terms with the European Union and the International Monetary Fund. The moves will test wills across Portugal, where Mr Gaspar said some workers could see their annual income cut by 24 per cent next year.

The new proposals follow cuts in spending on the health and education sectors, sharp rises in public-transport fees, substantial increases in fuel taxes and a temporary income-tax increase in 2011, all of which were announced earlier this year to meet this year's deficit targets.

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© Wall Street Journal

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