Portuguese Begin to Lose Faith in Austerity Programme

Recent plans by the Portuguese coalition government to raise social security contributions has led to the opposition, unions and employers uniting and demanding a rethink on this policy. Up until now Portugal has largely been united in trying to stick to the terms for its €78 billion bailout, but recent protests saw around half a million people demonstrate their displeasure at these latest proposals.

Austerity measures have already resulted in unemployment reaching record highs, and the country is in its deepest recession since the 1970s.

Earlier on in the month the government announced it would raise workers social security contributions to 18%, costing them the equivalent of one month’s wages, while cutting the same tax for companies to 18%, a reduction of 5.75%. It also announced its intention to raise capital gains and property taxes.

Shortly afterwards the troika announced the approval of Portugal’s bailout, resulting in the relaxation of the country’s fiscal goals for the rest of this year and 2013. Many Portuguese are having difficulty understanding why there is any need to increase the austerity measures, especially as the government recently announced the recession will extend into next year.

Now it looks as if the government may rethink these tax plans, as it recently announced they are still a work in progress and may change before the draft budget is presented in the middle of next month. The finance minister said it was the government’s intention to make every possible effort to cut administrative spending to help soften the fiscal measures planned.

Part of the coalition government has also asked the taxes not be raised any further in the draft budget, and that the government should only do what is absolutely essential.

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