Lisbon imposes new salary tax to boost coffers

The Portuguese government on Thursday said it would impose a special 50 percent levy on annual salary bonus payments as part of austerity measures to help balance the public finances.

“The government is preparing an extraordinary measure to help in adjusting the budget which will cover all revenues subject to income tax,” newly-elected Prime Minister Pedro Passos Coelho told parliament.

“This measure, which still needs to be finalised, will be submitted in the next two weeks. I can tell you, however, that it envisages a levy of 50 percent on the Christmas bonus for those earning more than the minimum wage,” he added.

Workers in Portugal usually get two bonus payments — one in the summer and a second at the end of the year.

“The state of the public finances forces me to ask for even more sacrifices from the Portuguese public,” Passos Coelho said.

Before the address to parliament, the prime minister had warned that his proposals would sober up the country after a borrowing binge which forced Lisbon to seek an EU-International Monetary Fund bailout earlier this year.

The EU and IMF agreed a 78-billion-euro ($112-billion) debt rescue plan with Portugal in April, after earlier bailouts for fellow eurozone strugglers Greece and Ireland.

In return for funding, Lisbon agreed to cut its public deficit to 5.9 percent of gross domestic product by the end of the year from more than 9.0 percent in 2010 and to bring within the EU limit of 3.0 percent of GDP by 2013.

Associated budget cuts under the three-year aid package are expected to cause the Portuguese economy to contract by around 2.0 percent this year and next.

Passos Coelho said the measure should bring in an additional 800 million euros “and reinforce the extra effort the public services will make, which will be for slightly more.”

The prime minister, who ousted the Socialist government at June 5 polls in which the EU-IMF bailout was a key issue, said that restructuring state-owned entreprises would likely be implemented in the third quarter this year, alongside the privatisation of state assets.

Reaction to the proposals appeared positive, with the Lisbon stock market jumping more than 3.0 percent on the day, helped also as the Greek parliament voted through a tough austerity programme to ensure continued debt funding.

All of the struggling eurozone countries — Greece, Ireland Portugal, which have been bailed out — alongside Italy and Spain have been forced on the defensive by markets demanding ever high prices in return for fresh loans.

All of them as a result have resorted to stringent spending cuts and tax hikes in an effort to balance their public finances and avoid a wider eurozone debt crisis that a default could spark.

The Portuguese parliament will debate the government’s overall austerity programme, announced Tuesday, for a second day on Friday.