Portugal approves austerity budget

The new tax hikes would hit Portugal's cash-strapped population in every area

Portugal took its most drastic step to date to keep its €78bn bailout on track yesterday when its parliament approved a budget that includes the country's most far-reaching tax rises in modern history. However, the tough new financial measures still face a major uphill struggle to become legally binding.

The new tax hikes would hit Portugal's cash-strapped population in every area from their monthly pay packets to property and transactions.

A final vote will take place in Parliament in late November. However, that is only a partial guarantee of their final legal status. Anti-austerity campaigners, spurred on by a court's decision to revoke an austerity plan to cut civil servants bonuses in July, are said to be planning to challenge the fairness of the new taxes. And Portugal's judges' union is reported to have claimed the new taxes could be unconstitutional.

Portugal's politicians have shown little inclination so far to present a united front to tackle the country's economic recession, its worst since the 1970s. The Socialist Party, which approved the initial bailout in April last year, voted against yesterday's budget plans and the CDS party, a junior partner in the ruling coalition alongside the PDS (Social Democratic Party), initially opposed the taxes but finally voted in favour.

"This is a degrading decision and brings shame on this house," said Socialist deputy Sergio Sousa Pinto, amidst claims that the new taxes would be equivalent to two months' salary in some Portuguese households.

As parliamentary opposition grows, unemployment levels have now reached 15 per cent, more than 3 per cent higher than the EU average. Unemployment is predicted to rise to 16.4 per cent in 2013.

Protests against the austerity measures are steadily increasing. A general strike is planned for 14 November.

While the government's popularity plummets, Prime Minister Pedro Passos Coelho is adamant that the taxes are necessary to keep the bailout afloat.

However, there is little certainty that a constitutional court would issue a verdict in favour of Mr Coelho's plan. Their reversal of his projects to cut bonus pay in July effectively wrecked one austerity plan and a second, which had aimed to raise social security benefits, was abandoned after street protests.