Portugal says it might widen pay cut, after court objection

The Portuguese government said on Friday that it might extend a pay cut for civil servants to others after a court struck down the initial measure, which is part of a crisis plan, as discriminatory.

Centre-right Prime Minister Pedro Passos Coelho responded by saying: “The only solution to hold to the intention of adjusting the finances, essential if Portugal is to meet its commitments, is to extend the measure to others.”

The newspaper Diario de Noticias estimated that the constitutional court ruling late on Thursday would cost the state 2.0 billion euros ($2.47 billion) in 2013.

But the court said that the government’s decision to abolish a thirteenth and fourteenth month of pay for public sector workers could stand for this year so as not to endanger attempts to rectify the public deficit.

The announced pay cut would also apply to civil service pensioners earning more than 1,000 euros ($1,238) per month, and was intended to last through 2014.

The measure violated the principle of equality enshrined in the constitution because it forced additional cuts on state employees and pensioners which were not imposed on others, the court said in its ruling.

Opposition left-wing members of parliament took the issue to the court in January.

The controversial wage cuts were part of an austerity package introduced to cut the public deficit, agreed with the European Union and the International Monetary Fund in return for a 78-billion-euro bailout granted in October.

Tens of thousands of people have demonstrated against the cuts, but the government has insisted they are necessary to reduce the public deficit.

In some European countries, annual pay is spread over more than 12 months, for various reasons including facilitating paying tax and for holidays.

Portugal has promised creditors it will achieve a public deficit of 4.5 percent of output this year and cut that to 3.0 percent at the end of 2013.

The deficit ratio last year was 4.2 percent, better than the target of 5.9 percent, but this was achieved with substantial and exceptional revenues.

In the first quarter of this year, the deficit was running at 7.86 percent of output.

Portugal hopes to follow the example set by Ireland, also rescued by the European Union and International Monetary Fund, and win sufficient credibility on financial markets to be able to begin borrowing funds at bearable rates on the open market.

The Portuguese economy is expected to shrink by 3.0 percent this year, and the combined pressures have increased calls for the government to ask the EU and IMF either for extra rescue funding or for more time to reach the targets for correcting public finances and restructuring the economy.

But the prime minister, anxious for Portugal to maintain its standing as a country determined to meet the rescue conditions, has ruled out any such renegotiation.

“It is out of the question,” he has said. It will not happen for as long as I head the government.”