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Budget Secretary Luis Sarmento said the government will impose new spending ceilings for ministries, renegotiate public-private partnership contracts and introduce a plan for wider public sector reform. It will also maintain a planned tax on unemployment and sickness benefits but exclude low-income earners.
In all, it expects the measures will fill a €1.3 billion budget gap created after a top court ruled unconstitutional some of the planned austerity measures for this year. Among them was the tax on jobless and sickness benefits, which the court said was unfairly imposed on all users. Mr Sarmento said the government will redesign the tax to resolve the court's concerns.
The government is expected to win approval for the spending cuts by parliament, where it holds a majority, with backing from a junior coalition partner that had earlier opposed further tax increases. Once Portugal convinces its lenders—the European Commission, the International Monetary Fund and the European Central Bank—that it will be able to meet a budget target of 5.5 per cent of gross domestic product this year, it will receive a €2 billion bailout tranche that has been withheld.
Since requesting the bailout two years ago, Prime Minister Pedro Passos Coelho has imposed a series of spending cuts and tax increases to cut the country's high budget deficit. The measures, however, have hit domestic consumption hard, putting the country in a deep recession. Unemployment has reached a record high of 17 per cent.