Prime Minister Pedro Passos Coelho’s plan to slash take home pay through a rise in employees’ social charges from 11 to 18 percent while cutting employers’ contributions to 18 percent from 23.75 percent, had been met with fierce opposition across the country.

As a result Passos Coelho had been forced to drop the plan which is part of an austerity package in exchange for crucial international bailout funds.

Instead the government was now looking at a rise in revenue tax as well as introducing new taxes on capital and assets.

The proposed tax hikes are expected to bridge a two billion euro gap in planned savings after the constitutional court ruled against a move to cut civil servants’ 13th and 14th month pay.

The new measures would still have to be approved by Portugal’s troika of international lenders — the European Central Bank, the International Monetary Fund and the European Commission, Passos Coelho said on Monday.

The cabinet met in a seven hour session after which it released a statement saying that “the government has begun detailing its budget proposal for 2013… which would be presented to parliament” before October 15.

Meeting deficit targets is key for Portugal to receive more funds under a bailout worth 78 billion euros ($101.5 billion) negotiated last year with the troika

But the spending cuts and economic reforms have caused a recession, with the economy shrinking by 1.2 percent in the second quarter, much faster than the 0.1 percent rate in the first quarter.

The contraction is expected to reach 3.0 percent for the whole year.

Hundreds of thousands of Portuguese marched in Lisbon in mid-September and the country’s main union CGTP has called for further mobilisation on September 29 in Lisbon.