Portugal top court rejects labor bill in blow to government austerity drive

LISBON Thu Aug 29, 2013 2:24pm EDT

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LISBON (Reuters) - Portugal's Constitutional Court on Thursday dealt a new blow to government efforts to cut spending and keep the country's EU/IMF bailout on track, rejecting a bill that would have effectively allowed the state to fire public sector workers.

The bill would have had a relatively low direct impact on the budget deficit in 2014, but it is seen as important because of its potential longer-term effect on spending cuts.

The ruling may also alarm investors as it suggests the court could throw out more of the government's planned austerity measures, endangering the deficit targets set out in its 78 billion euro bailout deal.

"The court decided to deem the norms (of the bill) unconstitutional ... due to the violation of guarantees of secure employment," the court said in a statement read out by a judge.

The court has rejected large parts of the government's deficit-cutting plans twice since the country accepted a bailout in mid-2011, forcing it to come up with alternative measures.

The parliament-approved bill was referred to the court by conservative President Anibal Cavaco Silva earlier this month. Unusually, the ruling was delivered two weeks before the deadline, with six of the court's 13 judges still on their summer holidays.

The measure, worth an estimated net 170 million euros in spending cuts in 2014, is one of a package intended to contribute to spending cuts worth 4.7 billion euros that Lisbon has promised its international lenders by the end of 2014.

Representatives of Lisbon's European and IMF lenders will discuss next year's budget with the government during a bailout review starting next month.

That review was postponed due to a now-healed political rift within the ruling coalition in July that came even closer to derailing the bailout.

The opposition has vowed to challenge various other measures in the package prepared by the centre-right government, including an extension of the working week by five hours to 40 hours for public sector workers that has already been signed into law.

The rejected bill would have effectively allowed public sector workers deemed surplus to requirements to be fired after a one-year period in which their salaries would be significantly reduced.

(Reporting by Andrei Khalip; Editing by Hugh Lawson)

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