Portugal's government unveiled harsh new austerity measures to control its budget deficit over the next two years, as it seeks to convince European peers that it has the political will to keep the promises it made when it was bailed out and avoid Greece's fate.
The new budget's tax-increase and spending-cut elements would reduce the government deficit by six percentage points of gross domestic product from what it would have been under current policies, Finance Minister Vitor Gaspar said in an interview.
The measures announced Monday include unpopular moves such as eliminating bonuses equivalent to two months of salary, in 2012 and 2013, for public workers and retirees making more than €1,000 a month ($1,390). They will give private-sector companies the option of implementing a 30-minute-a-day increase in working hours without any additional pay. The government will also keep a 5% salary cut in the public sector for some workers next year, a measure it implemented in 2011.
The cuts are tough compared with those applied by other euro-zone peers such as Spain and Italy. But like Greece and Ireland, Portugal is left with little option if it is to cut its public budget deficit by the amount required under its bailout terms with the European Union and the International Monetary Fund.
The moves will test wills across Portugal, where Mr. Gaspar said some workers could see their annual income cut by 24% next year.
Portugal has been a haven of calm compared with other countries caught up in Europe's debt crisis. Greece has repeatedly seen violent protests. In Spain, thousands of people have taken the streets in rallies since May.
Hours before the budget for fiscal year 2012 was presented to the Parliament on Monday evening, unions were calling for a national strike, the first since November 2010. "We are facing measures that, besides [being] unjust, compromise the development of our country," said Manuel Carvalho da Silva, head of Portugal's largest union confederation, CGTP. "They only worsen the crisis, cause more recession and unemployment," he added.
Portugal also saw rallies over the weekend as part of an international day of protests against austerity drives and the political establishment.
The new proposals follow cuts in spending on the health and education sectors, sharp rises in public-transport fees, substantial increases in fuel taxes and a temporary income-tax increase in 2011, all of which were announced earlier this year to meet this year's deficit targets.
Mr. Gaspar expressed confidence that public opinion would remain favorable to the government and its austerity program. "One of the advantages of having a very clear crisis is that it's perceived by people in the country as a national emergency. Everyone knows that everyone has to contribute for this adjustment to be successful," he said in an interview.
While votes on austerity budgets have been close in Greece and Italy, Portugal's government is nearly certain of getting parliamentary approval for its plan. The government, formed this summer by a coalition of two of the country's three main parties, has a solid majority in Parliament. The country's third party, the Socialists, have signed the commitment to meet bailout targets.
Greece has failed to meet the deficit targets to which it agreed. Euro-zone leaders are discussing revisions to its bailout amid speculation that its creditors will get even less than they had previously been promised.
The government of Portugal, a country of nearly 11 million, expects its recession to last until the end of next year. But Mr. Gaspar said he believes that the austerity plan will lead to economic growth, by breeding what he calls a "structural transformation" of the economy—changes to labor market and judicial system rules, as well as an ambitious privatization effort.
Under the €78 billion ($108 billion) bailout plan the country is receiving from the EU and IMF, Portugal must cut its deficit to 5.9% of GDP this year, 4.5% in 2012 and 3% in 2013. Last month, Lisbon said it found hidden debts on the books of the autonomous island of Madeira, forcing it to revise the country's deficit for 2010 to 9.8% of GDP from the previous 9.1%.
Mr. Gaspar, the economist who took the finance portfolio in June and worked at the European Central Bank and European Commission, said a mild recession in Europe wouldn't throw Portugal off course. "What does make a tremendous amount of difference is whether Europe has a credible way out of the current systemic crisis," he said.
He said he expects an Oct. 23 summit of European leaders to produce "a comprehensive package that will contribute strongly to tackling the crisis."
Mr. Gaspar said that with the new austerity measures, the country is on track to meet all its deficit goals. He added that after two years of contraction, the economy should grow again by 2013, once accounts are controlled and structural reforms are implemented.
Some private economists are skeptical, warning domestic demand will fall sharply under the plan, deepening Portugal's recession. "Of course austerity will have an impact on growth prospects," said João Cantiga Esteves, an economist at the Technical University of Lisbon. "But it is impossible to grow before we control the deficit. This is a step-by-step plan."
read more: Olympus Wealth Management
No comments:
Post a Comment