Portugal announces more pay cuts, higher taxes in 2012

 LISBON, Portugal – Portugal’s prime minister warned his country Thursday to prepare for deepening hardship next year as the government expands its austerity plan of pay cuts and tax increases to slash the national debt.

 Portugal is one of three eurozone countries that have needed financial rescue because of an unsustainable debt load. It took a $108 billion bailout in May. Despite a series of tax hikes and pay and welfare cuts, Portugal is coming up short on debt reduction targets it agreed to in return for the bailout.

 “We are living through a national emergency,” Prime Minister Pedro Passos Coelho said in a televised address.

 Passos Coelho announced that civil servants will next year lose their Christmas bonus and vacation pay – each equal to a month’s salary. They are already subject to a pay freeze.

 There will also be “very substantial” cuts in health care and education, Passos Coelho said.

 At the same time, more goods will be moved into the top 23 percent bracket of sales tax, and earners will be allowed fewer tax deductions. Legally permitted working hours are also to be extended and the number of public holidays cut.

Associated Press