PORTUGAL HAS introduced tough new austerity measures, including a “crisis tax” on wages and big companies, as part of a plan to cut its budget deficit by more than half in less than two years.
The extra spending cuts and tax rises announced by José Sócrates, the Portuguese prime minister, yesterday follow similar moves by Ireland,Spain and Greece.
They are part of a push by members of the European single currency to convince financial markets that they are tackling budget problems following this week’s €750 billion emergency support plan for the euro zone.
“These measures are absolutely necessary to defend our country, Europe and the single currency,” Mr Sócrates said.
Portugal has been seen as one of the EU members most vulnerable to attack by the markets after Greece.
The austerity drive is designed to reduce the budget deficit from 9.4 per cent of gross domestic product in 2009 to 7 per cent this year and 4.6 per cent in 2011.
In the cuts, politicians and public sector managers will see their salaries fall by 5 per cent.
The tax rises include a 2.5 percentage point increase in corporate tax to 27.5 per cent on annual profits above €2 million, a 1 percentage point increase in VAT to 21 per cent, and increases of up to 1.5 percentage points in income tax.
Asked why he had broken a recent pledge not to increase taxes, Mr Sócrates said: “The world has changed – and how – in the past two weeks.”
The minority socialist government said it expected tensions to increase as trade unions called for demonstrations. However, it was confident protests would not turn violent.
Economic growth of 1 per cent in the first quarter, the highest in the EU, has begun to lift Portugal out of recession. However one union leader said the new austerity measures would “place many families in great difficulties, if not real poverty”.
Portuguese 10-year bond yields, which have an inverse relationship with prices, fell a fraction to end the day at 4.45 per cent. Portugal’s stock market closed slightly lower. – Copyright The Financial Times Limited 2010
