Portugal takes debt bull by the horns in latest budget plan

Portuguese Finance Minister Vítor Gaspar on Wednesday unveiled a new four-year budget plan that included tax hikes for companies and well-off individuals aimed at tackling the country's debt problem and returning the country to growth.

As part of its commitments to the IMF and European Union under its 78-billion-euro bailout program, the government is imposing a 3-percent tax surcharge on companies earning over 1.5 million euros a year, an additional tax of 2.5 percent on high earners, who will also lose some tax breaks, and an increase in the capital gains tax to 21 percent from 20 percent.

A public sector wage freeze will also remain in place at least through to 2013. The government also intends to reduce the number of public sector workers by 10,000 a year through to 2015.

Gaspar said the measures are aimed at lowering the public deficit from an estimated 5.9 percent of GDP this year to within the European Union ceiling of 3 percent in 2013 and to 0.5 percent in 2015. Public debt is expected to rise from 100.8 percent of GDP this year before peaking at 106.8 percent in 2013 and subsequently declining.

The economy is expected to shrink 2.2 percent this year and 1.8 percent in 2012 before returning to growth of 1.2 percent in 2013. Growth is subsequently expected to accelerate to 2.5 percent in 2014 before dipping again to 2.2 percent in 2015.