The Portuguese prime minister, Pedro Passos Coelho recently announced a fresh round of austerity measures, as he feels they are necessary to ensure the country is able to meet its targets in return for receiving a €78 billion bailout from the IMF and European Union.
Next year’s budget will include an increase in social security contributions from 11% to 18% for all workers, and this equates to roughly one month salary. Even though the Prime Minister feels the country has made a good start in attacking the problems, he has been at pains to point out they haven’t yet been conquered.
This move is hardly likely to be popular amongst the Portuguese who have already seen across-the-board tax increases combined with spending cuts since the country was forced to seek a bailout last year.
In addition the Prime Minister is cutting the Social Security contribution of companies from 23.75% to 18% in the hope this will boost employment. Portugal will miss its budget deficit goals for this year, and economists think this is due to the government underestimating the depth of the recession that has led to lower tax revenues.
In July a court ruling prohibited a cut in salary benefits for public sector workers, making next year’s budget goals more difficult to meet. The increase in social security contributions is partly to make up for the shortfall due to that decision.
The opposition has urged the government not to adopt any further austerity measures, especially as the economy is expected to contract by more than 3% in 2012. However Portuguese banks’ borrowing from the European Central bank fell by 3.5% in August, and now stands at €54.9 billion.