Portuguese parliament passes "most demanding" budget

The Portuguese parliament on Wednesday approved a draconian budget for next year that aims to further trim the country's fiscal deficit to meet commitments in the 78-billion-euro bailout package granted by the IMF and the European Union.

The passage of what Finance Minister Vítor Gaspar has described as the "most demanding" budget ever was assured by the absolute majority of the Social Democrat Party-led coalition in parliament. The main opposition Socialist Party abstained while three left-wing groups voted against it.

The budget is based on the premise that the economy will contract by 3.0 percent next year after shrinking 1.6 percent this year, the deepest recession Portugal has suffered since the return to democracy in 1974.

The budget calls for a sharp reduction in spending, including cuts in public sector wages, and a generalized increase in taxes, most notably a rise in the value-added tax rate for different types of services and food from 13 percent to 23 percent.

Across-the-board levy hikes include rise in value-added tax for services and food from 13 to 23 percent

The government is aiming to cut the budget deficit to 4.5 percent of GDP from a projected 5.9 percent this year.