Portuguese Prime Minister Jose Socrates on Friday defended a controversial austerity budget which was threatening to spark a government crisis, reported dpa.
Austerity measures were necessary to restore the confidence of financial markets in the Portuguese economy, Socrates said at a parliamentary debate on the draft budget, which the assembly will vote on by October 29.
If parliament fails to back the budget proposed by Socrates' minority Socialist government, the premier has pledged to resign.
That would plunge Portugal into a months-long period of uncertainty and increase the concern of international financial watchdogs, which fear the country could need a Greek-style international bailout for its economy, analysts said.
Portugal was in an "emergency situation," Socrates said, defending a budget that would "reinforce the credibility of our economy and ensure its financing."
He urged the main opposition conservative Social Democratic Party (PSD) to "say no to insecurity."
But PSD representative Miguel Macedo accused the government of introducing tax hikes despite earlier saying they were not necessary.
The budget, which raises value added tax from 21 to 23 per cent and reduces tax deductions, was criticized by commentators as hitting especially the middle class.
The government earlier announced also a 5 per cent cut in public sector salaries, a pensions freeze and slashing public investment.
The government had led Portugal to a "disaster" with record levels of public debt, unemployment, taxes and poverty, Macedo charged.
The budget aims at cutting Portugal's 9.3 per cent budget deficit to 7.3 per cent this year and to 4.6 per cent in 2011. The deficit would further be trimmed below the European Union threshold of 3 per cent by 2013.
Portugal's public debt exceeds 80 per cent of gross domestic product (GDP) and unemployment is running at about 10 per cent.
The government has predicted a growth of at least 0.5 per cent this and next year, but other analysts have been more pessimistic, saying the economy could contract.
Spending cuts contained in the budget would create stagnation or recession, communist leader Jeronimo de Sousa said during the parliamentary debate.
Instead of making the Portuguese feel secure about their jobs and income, the government prioritized the concerns of "financial capital, the famous markets," Sousa charged.