Portugal's largest opposition party may allow the 2011 budget bill to pass if the minority government agrees to hike taxes less than planned, raising them gradually until 2013 instead, a newspaper said today.
The centre-right Social Democrats (PSD) had previously said they wanted no tax hikes next year and threatened to vote down the budget. The new stance, if confirmed, is a step towards a compromise with the government.
Quoting no sources, the Jornal de Negocios said PSD leader Pedro Passos Coelho and his closests aides met yesterday to isolate key points for budget talks with the government which will only be made public tomorrow.
The paper, Portugal's second largest business daily, said the PSD also wants the government to acknowledge that the budget deficit target of 4.6 per cent next year is too ambitious. One-third of the government's budget consolidation plan for next year hinges on tax hikes, including a two-point increase in value-added tax. The rest comes from spending cuts, including a five-percent cut in civil servants' salaries.
A longer-term agreement through 2013 will call for a somewhat more gradual deficit reduction to below 3 per cent, a year later than the government has planned, but still before the 2013 deadline set by Brussels, the paper said.
"We will not comment on this sort of report until after our meeting tommorrow night," a PSD spokesman said
Finance minister Fernando Teixeira dos Santos said in a weekened interview with SIC television that Portugal would have to ask for a bailout from the European Union and International Monetary Fund if the budget is not approved by parliament.
He has also said he did know what additional austerity steps could be introduced if market scepticism about the country's ability to cut its deficit persists.
The risk premiums on Portuguese bonds hit euro lifetime highs at the end of last month on concerns about its ability to cut the budget deficit. The spreads have narrowed of late, but failure to pass the budget is likely to lead to political paralysis and send bond yields spiralling higher again.
Reuters