LISBON (Reuters) - Portugal’s constitutional court gave the government on Thursday more leeway to cut the budget deficit by approving, in part, austerity measures included in an IMF/EU bailout that Lisbon exited in May.
The court ruled that salary cuts for public sector workers, which represent nearly 800 million euros a year in savings, would be valid this year and next but cannot be applied in 2016-2018 as originally proposed by the government.
The head of the court, Joaquim Sousa Ribeiro, told journalists that the decision to allow the salary cuts in 2014 and 2015 was made because they were “exceptional” years for Portugal so the country had less room to manoeuvre on the budget.
That would allow the government to continue to cut the budget deficit, as planned, to 4 percent of gross domestic product this year and to 2.5 percent next year, from 4.9 percent in 2013.
Still, the court rejected another measure which imposed a levvy on public sector pensions to raise extra revenues. But, this measure has a much smaller fiscal impact, of about 270 million euros a year, on government coffers than the reduction in salaries.
Financial markets have shown diminishing concern about Portugal, with its bond yields currently trading near their levels before the country entered its debt crisis in 2011.
The court’s decision marks a small victory for the government in its efforts to ensure it meets budget deficit goals agreed with the European Union.
At the end of May, the court rejected the government’s original proposal to cut public sector salaries, prompting it to forego the last payment - of 2.6 billion euros - of its bailout. The measures had previously been agreed under the terms of the 78-billion-euro bailout.
Reporting By Axel Bugge; editing by Ralph Boulton