Supreme Court Knocks Down Austerity Measures
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[May 31, 2014]
LISBON (Reuters) -
Portugal's supreme court has struck down several
austerity measures proposed in the government's 2014
budget, including salary cuts in the public sector,
creating a fiscal gap of 700 million euros.
The court ruled against planned salary cuts of between 2 and 12
percent in the public sector, undermining one of the key elements of
spending cuts set out in the international bailout that Portugal
exited this month.
The court late on Friday also ruled out cuts in pensions, and
sickness and unemployment benefits. It said the measures contravened
the rights of citizens spelled out in the constitution.
Analysts have seen challenges by the supreme court to austerity
measures as a risk to the economy's recovery that allowed Portugal
to leave behind its 78-billion-euro bailout by the European Union
and IMF this month.
Still, the court reduced the fiscal impact by ruling that the
reversal of the government's salary cuts would not be retroactive
and would come into effect in June.
"Budget execution has reached half way (through the year) and so
these substantial amounts could damage budget consolidation
targets," said Joaquim de Sousa Ribeiro, president of the supreme
Despite leaving behind its bailout, Portugal needs to sharply cut
its budget deficit in coming years under European Union agreements.
The budget gap must be cut to 4 percent of gross domestic product
this year and to 2.5 percent in 2015 from 4.9 percent in 2013.
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A reversal of the government's salary cuts in June is likely to cost
it around 500 million euros through the rest of the year as it had
originally expected to save 1 billion euros over the year. The
reversal of pension and benefit cuts would cost around 200 million
The court's decision is likely to force the government to find
alternative austerity measures or more tax hikes.
Analysts have said the country's recovery from its debt crisis has
been more focused on huge tax hikes than any lasting reforms that
will make the economy more efficient.
(Reporting By Sergio Goncalves, writing by Axel Bugge, Editing by
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