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Portugal unveils austerity measures

Portugal's government is taking the bailed-out country deeper into austerity, announcing sharp tax increases next year that risk worsening a recession and stoking public discontent.

The draft budget for 2013 is one of the harshest in the country's recent history and will take away the equivalent of a month's wages from many workers.

The government says the measures are needed to cut the national debt as Portugal strives to restore its financial health.

But critics say the latest batch of austerity measures will choke the economy, which is forecast to contract for a third straight year in 2013, and push higher the unemployment rate which already stands at a record 15.9 %.

Announcing "very significant" tax hikes, Finance Minister Vitor Gaspar said Portugal had no choice because it is locked into a three-year debt reduction program by its international creditors.

"We have no room for manoeuvre," Mr Gaspar told a news conference. Portugal "has to stay the course," he said.

With the government struggling to balance its books due to a slowdown in consumption and consequent drop in tax revenue, the bailout lenders - the International Monetary Fund, European Central Bank and European Union - recently eased Portugal's budget deficit target for this year to 5 % from 4.5 % of the country's 171 billion euro economy. The 4.5% goal was pushed back to next year. In 2010 the deficit was 10.1%.

Mr Gaspar said he also intended to enact spending cuts worth 2.7 billion euro next year, partly by laying off 2% of the country's 600,000 public employees.

The centre-right coalition government has an overall majority in Parliament and can force through the austerity package. However, the broad political and social consensus around the terms of last May's bailout - which committed Portugal to spending cuts and economic reforms - has unraveled.

The leader of the main opposition Socialist Party, Antonio Jose Seguro, said the measures were "a fiscal atomic bomb" that will wreck the economy.

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