Portugal plans to raise the retirement age by one year to 66 and make public sector employees work an extra hour per day as part of an array of new spending cuts needed to slash the budget deficit and meet its bailout targets.
The measures, which will be applied mostly from next year and are aimed at saving the state €4.8 billion by 2015, also include voluntary redundancy programmes for 30,000 of the country’s 600,000 public sector workers.
"With these measures, our European partners cannot doubt our commitment," prime minister Pedro Passos Coelho said in a televised address last night.
“The choice is not between austerity and no austerity. Not meeting the terms would cause us to leave the euro and have catastrophic consequences for all.”
The plan is still to be debated with the opposition, unions and employers, but the government has the power to force it through.
Some savings will also come from a reduction in overtime pay in the public sector and less spending on pensions and healthcare.
The European Commission, which has long insisted on permanent spending cuts, warned earlier on Friday that new measures could run into the same problems that led the Constitutional Court to reject some previous austerity steps, and said that could provoke an even deeper recession.
Last month, the court threw out €1.3 billion of measures from this year’s total austerity package, worth€5 billion, forcing the government to come up with new cuts and other alternatives to keep Lisbon’s EU/IMF bailout on track.
In its spring economic forecast, the European Commission warned “there is uncertainty regarding the design of measures of the public expenditure review related to their compliance with the latest Constitutional Court ruling”.
But analysts say that, although political parties and social movements are likely to challenge the new cuts in court, it will be hard for the judges to overrule them.
Average salaries in the public sector are higher than in the private sector and its workers will now work eight hours a day - about the same as in the private sector - so the government will in effect be promoting equality with the measures.
“This time the government may well escape getting the plan rejected by the court as it is now trying to follow the constitutional principle of equality, which brought down the measures last time,” said political analyst Antonio Costa Pinto.
And while the plan will probably cause more social strife, protests are unlikely to alter the government’s resolve in reducing the deficit, Costa Pinto said.
A group of about two dozen pensioners interrupted parliament’s session earlier yesterday singing “Grandola Vila Morena” - the signature song of the 1974 Carnation revolution that ended a dictatorship - from the gallery before being escorted out by police.
The centre-right coalition government has a comfortable majority in parliament and there is little chance of a political crisis breaking out over the new austerity steps.
Although numerous, anti-austerity protests in Portugal have been largely peaceful, lacking the kind of violence seen in Greece or Italy. Strikes have been rare and had little effect.
Under the bailout programme, Portugal has to cut the budget deficit to 5.5 per cent this year from last year’s 6.4 per cent, then to 4 per cent in 2014 and 2.5 per cent in 2015. The lenders eased the country’s deficit targets in March because a recession, now into its third year, was proving deeper than expected.