LISBON (AFP) - Portuguese Prime Minister Pedro Santana Lopes defended his government's budget for 2005 on the eve of its vote in parliament, arguing it will maintain budgetary rigor even as it cuts income taxes and raises pensions and civil servant salaries.
He told parliament Portugal had undergone "a real shock treatment" over the past three years to control its public deficit but the economy was now growing and it was time to adopt measures to boost competitiveness.
"A budget of rigor and hope will follow a budget of rigor and sacrifice," the centre-right prime minister said.
The budget is based on a forecast of gross domestic product (GDP) growth of 2.4 percent in 2005.
Portugal's economy contracted by 1.3 percent last year, its worst performance in more than a decade. It is expected to grow by just over one percent in 2004.
Left-wing opposition parties argue that the budget proposal, Santana Lopes's first since he became prime minister in July following the resignation of Jose Manuel Barroso, lacks credibility.
Barroso is to be the next head of the European Commission.
They also accuse the government of electioneering since the bulk of the tax cuts will only come into effect in 2006 when the next general election is due.
The finance ministry says the extra spending will be offset by the elimination of tax breaks for payments into popular saving funds for pensions, share purchases and housing as well as by increased efforts to fight tax evasion and further sales of state property.
Santana Lopes said the budget will bring the public deficit, corrected for the economic cycle and excluding special measures, down to 2.9 percent of GDP in 2005 from 3.2 percent this year.
"These are numbers which unequivocally confirm that we have not abandoned budget consolidation," he said. "We are not irresponsible."
Portugal became the first nation in 2001 to exceed a deficit limit of three percent of output imposed on nations which adopted the euro currency, but under Barroso it managed to keep it below this threshold in subsequent years through an unpopular mix of asset sales, a higher sales taxes and lower spending.
As the governing coalition enjoys a slim majority in parliament the budget is expected to pass despite warnings by all four left-wing opposition parties that they will vote against it.
Santana Lopes added the government would continue to raise pensions in 2006 if predictions for world economic growth hold up that year.
The aim would be to bring the minimum old-age pension to the same level as the minimum monthly minimum wage.
"It would be a financial and budgetary effort of historic proportions," Santana Lopes said.
The budget blueprint for 2005 sets aside 50 million euros (65 million dollars) to bring minimum pensions to an average of 64 percent of the monthly minimum wage of 366 euros (474 dollars).
The Bank of Portugal warned Tuesday in its latest bulletin however that it would be unrealistic to consider that the effort towards budget consolidation is finished and that government policies could once again be geared towards expansion.
11/17/2004 - 18:42 GMT - AFP