Portugal's parliament approved today the general guidelines of an austerity package, delivering the government a victory in its drive to cut the budget deficit.
Parliament approved the austerity plan by the minority Socialist government thanks to the support of the opposition centre-right Social Democrats, which had promised to back the legislation because of the euro zone debt crisis.
"These measures highlight structural reforms and the significant effort they contribute to balancing the public accounts, promoting competitiveness and returning confidence and financial stability to markets," finance minister Fernando Teixeira dos Santos told parliament ahead of the vote.
The measures, announced on May 13th after a meeting between prime minister Jose Socrates and Social Democrat leader Pedro Passos Coelho, are aimed at speeding up a reduction in Portugal's budget deficit to avoid a spread of the debt crisis.
"As unpopular as the consolidation measures are, they are essential to rebalance public accounts so that Portugal can reestablish its external credibility," Mr Teixeira dos Santos said.
The plan aims to save €2 billion this year in order to cut the budget deficit to 7.3 per cent of gross domestic product this year from 9.4 per cent in 2009. It includes a hike in income and value-added taxes and some salary cuts in the public sector.
Under the plan, the budget deficit will be cut to 4.6 per cent of GDP in 2011.
Today's vote was on the general guidelines of the measures, which under Portuguese parliamentary procedure is subsequently followed by a detailed line-by-line vote of each item. That vote is scheduled for June 9th but with the guidelines approved the total amounts of the plan cannot change.
There were concerns earlier this year as the euro zone debt crisis worsened that Portugal would struggle to adopt fresh austerity measures because the Socialists held only a minority.
But those doubts diminished for now thanks to the support of the Social Democrats for the austerity plans.
Portugal's austerity plan was announced after the European Union and International Monetary Fund unveiled a $1 trillion emergency safety net for troubled euro zone countries.
Investors got a fright last week when neighbouring Spain's Socialist government won a vote on its own austerity plan by a margin of just one vote.
Reuters