LISBON Portugal's prime minister signaled on Thursday he intends to move ahead with a deep reform of the state, which is set to include big spending cuts, saying the reforms are necessary to be able to lower taxes in the future.
"Reform of the state has already started but it now needs a new push," Prime Minister Pedro Passos Coelho told a conference, referring to state reforms that the government has said will include 4 billion euros ($5 billion)in spending cuts. "The state reform has to include the objective of permanent spending cuts."
Passos Coelho said he wanted to lower taxes but permanent spending cuts must be applied first.
His comments came as a growing number of Portuguese, including a key business leader, say the economy faces several more years of recession if the government launches more austerity under the country's bailout.
The country's recession deepened in the last quarter of 2012 and there are growing fears that it will worsen this year as the Portuguese face the biggest tax hikes in living memory. Opposition politicians have demanded that the government ease its austerity drive as lenders to Portugal's bailout started their seventh review of the program this week.
But Passos Coelho indicated there would be no let up in the austerity that has driven unemployment to record levels even though he has said he will request a delay of budget goals for a year.
"We need to remain loyal to our strategy, our collective future is at stake," he said.
"We are going through a very significant moment of our adjustment process. The seventh regular review will already reflect the new post-troika process of adjustment," he said, referring to the state reform.
The government is set to present the troika officials -- from the European Commission, European Central Bank and IMF -- during the seventh review with details on how it intends to cut state spending by 4 billion euros in 2013-14.
(Reporting By Axel Bugge and Daniel Alvarenga; editing by Ron Askew)