Portugal takes more austerity measures

LISBON (AFP) - – Portugal announced Thursday a fresh austerity package following eurozone partner Spain's lead, aiming to halve its budget deficit by 2011 with a series of tax hikes and salary cuts for public servants.
"Next year, we are going to reduce the deficit to 4.6 percent (of gross domestic product,)" Socialist Prime Minister Jose Socrates said after a cabinet meeting.
In 2009, the deficit came to 9.4 percent, one of the highest in the eurozone and way above the European Union's three percent limit.
The government earlier targeted a 2011 shortfall of 5.1 percent but a growing crisis sparked by massive debt and deficit problems in Greece has forced eurozone member states to take even more difficult measures.
Socrates reiterated that his minority government would aim for a 2010 public deficit of 7.3 percent, rather than the previous target of 8.3 percent.
The prime minister said sales taxes would rise by one percentage point to 21 percent to increase revenues while costs would be reduced, with salaries for civil servants and public officials, including ministers, cut by five percent.
He said an income tax surcharge of 1.0-1.5 percent would be levied on higher earners while large companies making profits of more than two million euros (2.5 million dollars) would be taxed at 27.5 percent, up from 25 percent.

"All these measures will remain in place until the end of 2011," Socrates told a press conference.
"These extra measures are essential to defend our economy, to ensure that we can obtain finance and to reinforce our credibility on international markets.
"(They) will also defend Europe and the eurozone," he said.
The government previously announced that it was freezing major public works such as a new Lisbon airport in an effort to balance its books.
Unions protested immediately, with CGTP union leader Carvalho da Silva describing the measures as "very violent" and calling for action against them.
Socrates conceded it was "very difficult to be completely fair" but insisted that the measures would only be in force until end-2011 and stressed that Portugal's economy was growing faster than its EU peers.'
The prime minister earlier met the leader of the opposition, Pedro Passos Coelho earlier to discuss the steps and how to get them through parliament.
"I must ask pardon because these measures are hard for most Portuguese but the country is facing an emergency," Passos Coelho told a press conference.
Portugal, like Spain and worse still Greece is struggling to stabilise its public finances as massive debt and budget deficits have eroded market confidence and driven up borrowing costs, sparking fears of a default.
Portugal's public debt, which came to 76.6 percent of GDP last year, is projected to widen to 86 percent in 2010, well beyond the 60 percent level prescribed by the eurozone.
On Wednesday, Spain's Socialist Prime Minister Jose Luis Rodriguez Zapatero ordered a five percent pay cut for public workers, a partial freeze on pensions and the scrapping of a 2,500-euro-payout for new births as he seeks to save an extra 15 billion euros over two years.
Spain announced a 50-billion-euro austerity package in January designed to slash its public deficit to three percent by 2013 from 11.2 percent last year.
Earlier Thursday, German Chancellor Angela Merkel warned that governments had to do all they could to stabilise the euro and preserve the European Union.
The current crisis is "the biggest test" for the EU, possibly since the founding Rome Treaty in 1957, Merkel said.
"If the euro fails, it's not only the currency that fails but much more, it's Europe that fails and with it the idea of the European Union."