* New tax and other measures to comprise 3 pct of GDP in
* General strike called fro Nov. 14
* Debt agency swaps 3.76 bln euros of 2013 debt for 2015
* Bond operation follows similar transaction by Ireland
By Sergio Goncalves and Daniel Alvarenga
LISBON, Oct 3 Portugal adopted sweeping tax
hikes on Wednesday to meet budget goals under its international
bailout, prompting unions to call a general strike against
austerity measures that have exacerbated recession and are set
to push record unemployment yet higher.
In a sign of progress in its long haul back to financial
stability, Portugal earlier in the day returned to bond markets
for the first time since it sought the 78 billion euro ($101
billion) bailout last year, swapping short for longer-dated debt
to buy time to fix its finances.
The country's worst recession since the 1970s could deepen
if the tax hikes further undermine consumer confidence and fail
to stop a fall in tax revenues.
"We are confronting a critical moment," Finance Minister
Vitor Gaspar told journalists as he detailed the tax rises,
which the government came up with after it abandoned a previous
tax plan in the face of mass protests.
"It is fundamental that we maintain our current path to
overcome our difficulties," said the minister.
The country's main union, the CGTP, responded with a call
for a general strike on Nov. 14, dubbing the austerity measures
"an authentic programme of aggression against the workers and
the people". The CGTP already held a large protest march on
"The consequences for the workers and their families are
brutal - general impoverishment, drastic worsening of living
conditions and life expectancy," it said in a statement.
Protests and strikes against cost-cutting have risen in
recent weeks, with both railway and metro workers staging
periodic walkouts all this week.
Gaspar outlined tax rises across the board for 2013,
including income and property taxes, plus a new tax on financial
transactions. The average income tax rate will rise to 11.8
percent from 9.8 percent currently and an additional 4 percent
tax surcharge will be levied on incomes in 2013.
The government said the measures, which also include
spending cuts, will amount to 3 percent of gross domestic
product next year, and raised its estimate for unemployment to
16.4 percent from its current record level of 15 percent.
"These are tough measures ... and protests will probably go
on, but I don't think there will be any backing off by the
government this time," said Antonio Costa Pinto, political
scientist at the University of Lisbon.
Portugal faces growing challenges as the previous political
consensus behind the austerity programme was dented last month
by the country's largest protest since the bailout following a
government plan to raise social security taxes.
The government abandoned the plan after the protests and
announced Wednesday's tax hikes as an alternative.
Gaspar maintained the government's forecast of a 3 percent
slump in gross domestic product this year and a decline of 1
percent in 2013.
REGAINING MARKET ACCESS
But he said the sacrifices were not in vain, as the
earlier-than-expected bond swap showed confidence in Portugal
"It is not often that international investors show so much
confidence in Portugal's adjustment as they did today," Gaspar
said. "Portugal was to return to the market in 2013, it returned
in 2012 ... It is an important mark."
Portugal sold 3.76 billion euros ($4.86 billion) of October
2015 bonds, exchanging them for debt maturing in September 2013.
The swap to extend the debt maturity follows similar operations
by fellow bailout recipient Ireland.
"The size of the swap is very decent, and I guess it goes
some way in reflecting that there are investors out there who
have confidence in Portugal's and the euro zone's outlook," said
Orlando Green, debt strategist at Credit Agricole in
The country has still a long way to go before it can finance
itself in the market, but buying up the September 2013 bond now,
before it matures, will help its financing needs next year.
The amount it swapped represented 39 percent of the
outstanding amount of the September maturity - the first not
fully covered by the bailout.
While still high, Portugal's bond yields have fallen sharply
this year, helped by the European Central Bank's plans to help
hold down the borrowing costs of countries that have signed up
to budget overhauls.
Benchmark yields have fallen to around 9 percent from highs
near 17 percent in January. Ten-year yields were slightly lower
on Wednesday at 8.76 percent.