Portugal announces across-the-board spending cuts of 800 million euros

The Portuguese government on Thursday unveiled across-the-board cuts in public spending of 800 million euros, equivalent to 0.5 percent of GDP, that it said will allow it to meet its budget deficit target of 5.5 percent of GDP for this year and secure the release of further tranches of its 78-billion bailout from the European Union and the IMF.

The need for further austerity measures was thrust upon by the center-right administration of Prime Minister Pedro Passos Coelho by the Constitutional Court’s decision earlier this month to throw out some 1.35 billion in fiscal measures included in the initial 2013 budget. The government said it will also find another 500 million euros in savings by “reprogramming” investment projects.

After a marathon Cabinet session that lasted into the early hours of Thursday, Cabinet Secretary Luis Marques Medes outlined a “reduction of the public sector payroll, an increase in the age of the retirement to 67 from 65, and layoffs at ministries,” as some of the measures that will be implemented.

Exact details of the cuts are due to be unveiled in three weeks’ time when the government will present an alternative budget to parliament. Marques Medes said the cutbacks will “put pressure on public services.” Passos Coelho had earlier announced that the adjustments would affect health, education and public transport among other areas.

The government admits the cutbacks will “put pressure on public services”

Marques Medes said the government would also present structural reforms aimed at shaving four billion euros off public spending on a permanent basis.

The cabinet secretary said the government would hold talks with opposition parties and social agents to reach as broad a consensus as possible on the adjustments. However, António José Seguro, the leader of the main opposition Socialist Party, on Wednesday told Passos Coelho not to count on the support of his group if the alternative budget meant more austerity.

Marques Medes said the seven-year extension of the repayment schedule for the bailout agreed last week by Portugal’s European partners was “conditional on these new austerity measures.” The new measures were agreed in meetings with the so-called troika formed by the European Commission, the IMF and the European Central Bank.

The measures thrown out by the Constitutional Court included suppressing the normal Christmas and summer bonus payments to civil servants and pensioners. Marques Medes said the Christmas payment will be made in November. The summer payment will be spread out over 12 months.