LISBON (MNI) – Portugal unveiled a 2013 budget on Monday that, as
expected, slashed spending and imposed heavy tax increases in an effort
to hit the deficit target required by the country’s E78 billion bailout.
Finance Minister Vitor Gaspar confirmed that the deficit would fall
to E7.5 billion, or 4.5% of GDP, thanks to spending cuts totalling E2.7
billion and a range of tax increases. The government’s deficit target
this year is 5%.
“Portugal is experiencing a time of very demanding adjustment,”
Gaspar told a press conference. He said that the adjustment process was
like a “marathon,” but that going back was “incomprehensible.”
Portugal is going through its worst recession since the 1970s, with
the economy expected to contract by 1% in 2013 after an expected 3%
decline this year. Strict austerity has sharply reduced domestic demand
while lower labor costs have helped exports to rebound.
Gaspar said that total internal demand was expected to fall by 2.9%
next year, while the export sector was expected to grow further.
As expected, the 2013 budget boosts the average income tax rate to
11.8% from 9.8%. When taking account of a special tax surcharge for
2013 of 4% for incomes above the minimum wage and a 2.5% “solidarity”
tax for highest tax bracket, the tax rate will rise to 13.2%.
The budget cuts of E2.7 billion will fall heavily on government
payrolls, with a minimum of 10,000 workers expected to lose their jobs
next year, the Secretary of State of Public Administration, Helder
Rosalino, told the press conference. Total unemployement is expected to
rise to 16.4%.
Gaspar said that the government had, in effect, little choice to
but to adopt the cuts and tax increases as it was the only way to
successfully conclude its fifth bailout review by international
creditors in September and unblock the next aid tranche.
“Our margin for error was very reduced,” Gaspar said. “Rejecting
the budget is rejecting the adjustment program,” he said.
–Paris newsroom, +33142715540
[TOPICS: M$$CR$,M$X$$$,MGX$$$,M$P$$$,MT$$$$]
