Portugal’s parliament has approved a plan to hike taxes and cut salaries and welfare benefits next year in a bid to reverse waning market confidence in its public finances.
Lisbon’s high debt and low growth have alarmed investors, fuelling speculation it may be the next European country to need a bailout after Greece and Ireland.
The government insists it won’t need financial rescue, saying the austerity measures will restore fiscal health.
The measures carried a political cost for the minority Socialist government which managed to pass the plan only after negotiating its content with the main opposition party. All other parties voted against it.
Investors worry that Portugal could be the next European country to need a bailout because of its high debt and low growth. To keep the rot from spreading to the much larger neighbour Spain, some believe Portugal should take money earlier rather than later.
Finance minister Fernando Teixeira dos Santos said that a bailout was not Portugal’s “political option” and that the austerity measures would place the country on the path to fiscal health. The government has repeatedly said in recent times it does not want or need assistance.
The austerity plan, to be introduced in January, aims to drive the deficit down to 4.6% of GDP next year from an estimated 7.3% this year. Last year the deficit stood at 9.6% – the fourth highest in the eurozone after Greece, Ireland and Spain.
Mr Teixeira dos Santos said he reckoned Portugal has six months to show markets it is able to bring its spending under control.
“We have to restore market confidence and to do that we have not only to set targets … but also show results,” he was quoted as saying.
Prime minister Jose Socrates said in a brief statement after parliament approved the government’s 2011 spending plan that the country had “no alternative at all” to the belt-tightening policy.