Warnings of strife over Portugal tax hike

A man walks past graffiti against Portugal's Prime Minister Pedro Passos Coelho on the streets of...
A man walks past graffiti against Portugal's Prime Minister Pedro Passos Coelho on the streets of Lisbon. The graffiti reads, 'Passos Out, General Strike'. REUTERS/Hugo Correia
Portugal's second-biggest union wants a complete revision of a planned tax hike and warned that social strife could escalate because of the austerity measure, pushing the country closer to the economic and social turmoil seen in Greece.

"For us, there has to be a complete revision of this measure," UGT union head Joao Proenca told reporters after meeting Prime Minister Pedro Passos Coelho on Wednesday to discuss an increase in workers' social security contributions, announced this month. "That much sacrifice is not admissible."

Proenca did not elaborate on what his union was demanding but said union and business group representatives would hold another meeting with Passos Coelho on Monday.

Political consensus on the need for austerity to meet Lisbon's commitments under its EU/IMF bailout has faltered since the government announced plans on Sept. 7 to raise social security contributions for individuals while cutting businesses' contributions.

Thousands of Portuguese took to the streets to demonstrate against the measures on Saturday in the biggest public protest since the country received its bailout last year. Proenca said he would not rule out calling a general strike.

His moderate union had previously accepted the necessity of austerity and agreed to labour market reforms demanded under the 78-billion-euro bailout.

"In addition to increasing social strife in the country, the measure will bring us closer to the situation in Greece, and on top of that there is a serious risk ... that we return to a grave political crisis," Proenca said.

Austerity has pushed Portugal into its worst recession since the 1970s but the government insists there is no alternative. It has said it is willing to "calibrate" the tax rise but said alternative austerity moves would also hurt consumption.

The finance ministers of Germany and Portugal, meeting in Berlin on Wednesday, said Lisbon's reforms were producing results.

"The Portuguese economic adjustment is proving to be a demanding and painful process, calling for heavy sacrifices from the people, but the results are encouraging," Germany's Wolfgang Schaeuble and Portugal's Vitor Gaspar said in a joint statement.

Portugal's centre-right coalition government announced on Sept. 7 it would raise workers' social security contributions to 18 percent from 11 percent in 2013, and cut the same tax for companies to 18 percent from 23.75 percent, without consulting uni o ns or business groups beforehand.

The measures have also irked junior coalition party the rightist CDS party, which typically opposes tax hikes.

Paulo Mota Pinto, a lawmaker for the ruling Social Democrats, told parliament on Wednesday that only meeting the goals of the bailout would "avoid the destiny of countries like Greece."

Antonio Saraiva, head of Portugal's biggest employers' group, said the government seemed ready to compromise. "The challenge we face demands consensus," he said.


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