The European Union and IMF agreed on Tuesday to ease budget goals imposed on Portugal under a 78-billion-euro bailout, Finance Minister Vitor Gaspar said, giving Lisbon more time to meet the targets as its economy slides deeper into recession.
The move marks a climb down for the centre-right coalition government which has single-mindedly concentrated on meeting the goals as justification for harsh austerity measures which have sent the economy into its worst recession since the 1970s.
"The aim of this change is to adjust the programme to a different external and internal reality than initially expected," Gaspar told reporters after a review of the country's bailout programme agreed last year with the EU and IMF.
Under the revised targets, Portugal can now post a budget deficit of 5 percent of GDP this year, 4.5 percent in 2013 and 2.5 percent in 2014, Gaspar said. Previously, the bailout had envisaged deficits of 4.5 percent this year and 3 percent in 2013.
Gaspar said the recession would be deeper than expected in 2013, with GDP dropping one percent after a dive of 3 percent this year.
The minister said the government may have to carry out further austerity measures to meet the new goals, adding that tax on capital gains and dividends would rise.
The government already announced last Friday an increase in social security taxes paid by all workers, roughly equivalent to one month's salary.
The additional austerity, on top of across-the-board tax increases and spending cuts, has prompted complaints from the opposition Socialists and trade unions. That could threaten the broad consensus on accepting austerity that has existed in Portugal since the bailout.
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