Portugal Govt cranks up debt reduction effort

LISBON, Portugal (AP) - Portugal's government plans "unprecedented" spending cuts next year to meet debt-reduction targets agreed in return for a 78 billion ($112.7 billion) bailout, the country's finance minister said Wednesday.

Portugal has to abide by debt targets to qualify for bailout loans from its European partners and the International Monetary Fund, which are conducting quarterly reviews of the country's progress before disbursing the money in portions.

The rescue package spared debt-heavy Portugal from bankruptcy, and aimed to ease Europe's sovereign debt crisis, but Lisbon has struggled to keep its fiscal recovery plan on track.

It previously announced it is levying a one-off tax, taking 50 percent of workers' Christmas bonus, to help reach the 5.9 percent target for the budget deficit this year. The bonus is equivalent to a month's pay.

"In 2012 we will have to make an extra effort to abide by our commitments," Finance Minister Vitor Gaspar told reporters.

The plans will bring more pain for families and companies already finding it hard to make ends meet amid tax hikes and welfare cuts. Unions have vowed to fight the measures and plan demonstrations Oct. 1, though Portugal so far has not witnessed any of the street violence seen in Greece, which also took a bailout.

Gaspar said the number of civil servants will be reduced by 2 percent annually over the next three years while civil service salaries will be frozen over the same period.

A planned tax hike for top-earning individuals and companies will increase revenue. People earning more than 150,000 will pay an extra 2.5 percent tax on income over that amount, while a 3 percent levy will be imposed on company profits over 1.5 million. Tax breaks are also to be curtailed.

Gaspar said the government intends to dismantle 20 percent of Portugal's 94 state companies, whose debts last year were equivalent to 19 percent of the country's gross domestic product. He did not say which companies will be wound up. Details are to be included in 2012 state budget, due Oct. 15.

The government also plans a raft of privatizations that aim to raise around 5 billion ($7.2 billion).

Stakes in energy companies Galp, electricity grid REN and Energias de Portugal are to be sold this year, Gaspar said.

Brazilian energy company Eletobras said Wednesday it is studying the possibility of buying a stake in Energias de Portugal.

Other selloffs include flag carrier TAP Air Portugal, airport management company ANA, mail company Correios de Portugal, part of rail company Comboios de Portugal, one of state broadcaster Radiotelevisao Portuguesa's television channels, and national news agency Lusa.

Portugal's efforts to restore its fiscal health are made harder by an economy that has gone to seed. The country went into a double-dip recession this year, and the economy is forecast to keep contracting through 2012.

Gaspar said he expected growth of 1.2 percent in 2013.

The jobless rate is 12.3 percent, above the European Union average of 9.4 percent, and is predicted to reach 13.2 percent next year.

Public debt will surpass 100 percent of GDP this year and peak at 106 percent in 2013 before retreating, according to Gaspar