The Portuguese government recently approved substantial tax hikes in order to keep to its austerity program, but it faced opposition from all parties who voted against the deficit reduction measures. These measures mean most workers will lose the equivalent of around one month income in 2013.
The opposition feels current austerity measures won’t do enough to revive the economy and the concern is that Portugal could end up going the same way as Greece. However the European Central Bank and the International Monetary Fund have praised the government’s strategy and feel it will do much to help Portugal return to financial health.
For its part, the government feels it’s hands are tied and there is simply no choice but to implement these tax increases. The bailout deal which is worth a total of €78 billion requires Portugal to cut its deficit, and the country has currently received €61 billion in bailout funds.
Although the finance minister of Portugal has been quoted as saying the tax hikes are “enormous” he is hopeful they will help restore investor confidence in the country, and that Portugal will still be able to obtain international credit from September next year as planned.
The current spending cuts are worth €2.7 billion, and the aim is to reduce the budget deficit to 4.5% in 2013 compared to 5% in 2012. The government hopes the new taxes will increase revenue by 30% in 2013. However the Organization for Economic Corporation and Development is predicting the economy will contract by 1.8% next year, and the government forecasts showed the unemployment rate will increase from 15.7% to reach a record 16.4% in 2013.