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23 September 2012

WSJ: Portugal gives ground on worker contributions

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Portugal's government has signalled it is ready to drop a controversial plan to increase workers' social security contributions to lower labour costs for companies after the measure caused a national uproar.

A statement released after the meeting said Mr Passos Coelho was open to look at alternatives for the measure, which is one of many in a new round of economic overhauls meant to cut the country's public deficit. The Portuguese leader is scheduled to meet with unions and business associations on Monday.

Under a €78 billion  bailout requested early last year, Portugal is required to cut its budget deficit to 5 per cent of gross domestic product this year and 4.5 per cent next year from 7.7 per cent in 2011, excluding a one-time transfer of pension funds from banks to the government.

Mr Passos Coelho said last week that starting in 2013, employees would pay 18 per cent of their salaries to the social-security system, up from 11 per cent, allowing companies to cut their contributions to 18 per cent from 23.75 per cent. Unions called the measure an unfair transfer of money from workers to companies. Business associations said the idea would make it impossible for enterprise owners to keep their employees motivated. Criticism of the decision has come even from the minority party in the governing coalition and from some members of Mr Passos Coelho's own Social Democratic Party.

Economists say an alternative to the rise in employees' pension contributions could be an increase in income tax, though that wouldn't lower the costs for companies, something Portugal's creditors have said is essential for the country to become more competitive abroad and create sustainable growth.

Full article

© Wall Street Journal

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