Portugal plans deep cuts to government budget

LISBON, Portugal (AP) — Portugal’s government plans “unprecedented” spending cuts next year to meet debt-reduction targets agreed in return for a euro78 billion ($112.7 billion) bailout, the country’s finance minister said Wednesday.

Portugal has to abide by debt targets to qualify for bailout loans from its European partners and the International Monetary Fund, which are conducting quarterly reviews of the country’s progress before disbursing the money in portions.

The rescue package spared debt-heavy Portugal from bankruptcy, and aimed to ease Europe’s sovereign debt crisis, but Lisbon has struggled to keep its fiscal recovery plan on track.

It previously announced it is levying a one-off tax, taking 50 percent of workers’ Christmas bonus, to help reach the 5.9 percent target for the budget deficit this year. The bonus is equivalent to a month’s pay.

“In 2012 we will have to make an extra effort to abide by our commitments,” Finance Minister Vitor Gaspar told reporters.

The plans will bring more pain for families and companies already finding it hard to make ends meet amid tax hikes and welfare cuts. Unions have vowed to fight the measures and plan demonstrations Oct. 1, though Portugal so far has not witnessed any of the street violence seen in Greece, which also took a bailout.

Gaspar said the number of civil servants will be reduced by 2 percent annually over the next three years while civil service salaries will be frozen over the same period.