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Dismissal of Salary Plan means More Spending Cuts for Portugal

Portugal, which has already introduced significant spending cuts and tax hikes in an attempt to meet the terms of its bailout, faces further cuts as a plan to suspend monthly salary payments to pensioners and state workers was blocked by the Constitutional Court.

The government’s original plan, to withhold the equivalent of two months of salary payments from state workers in 2013 and 2014, had already been blocked by the Constitutional Court last year despite the action having the potential to save 2 billion Euros. The revised plan, which would involve the withholding of one monthly salary payment, has now been vetoed.

In March the Portuguese government announced wider deficit targets and doubled its forecasts for economic contraction in 2013. Now, according to Pedro Passos Coelho (the nation’s Prime Minister) additional spending cuts will need to be implemented if Portugal is to defend its ‘more fragile’ position with international lenders.

Yesterday Passos Coelho asserted: ‘I will give instructions to the ministries to proceed with the necessary reductions in operating expenses to compensate for what was blocked by the Constitutional Court’s ruling. The government does not accept more tax increases, which seems to be the solution that the Constitutional Court favours in its interpretation.’

He continued: ‘The government is committed to all the goals of the [78 billion Euro] aid program. We will have to do everything to avoid a second rescue.’

German Finance Minister Wolfgang Schaeuble also commented on the development during an interview for Bayerischer Rundfunk radio. Schaeuble stated: ‘Portugal has made great progress in the past years, Portugal is on its way to regain access to financial markets, but Portugal must, and the government has said so, take new measures after the court ruling. [These measures] will then be examined by the Commission and the council of finance ministers.’