Portuguese party says no crisis over tax-heavy budget

LISBON (Reuters) - The junior party that guarantees the Portuguese government's majority in parliament promised on Thursday not to create a political crisis when it votes on next year's tax-grabbing budget on October 31.

Political dissent over the scale of austerity in the budget has grown and prompted speculation that the centre-right coalition could fracture under the pressure of meeting the terms of Portugal's international bailout.

Popular protests are also growing. Thousands have taken to the streets and on Thursday, workers at oil company Galp refineries and state-controlled news agency Lusa went on strike. A general strike is scheduled for November 14.

But the CDS party, the right-wing junior partner in the coalition government, said in a statement emailed to Reuters that it "will vote on the budget considering that Portugal cannot afford to have a political crisis which would make its economic and social situation more severe."

The statement was signed by CDS leader Paulo Portas, who is also Portugal's foreign minister.

Next year's draft budget, announced on Monday, includes the steepest tax rise in Portugal's democratic history as the country strives to meet the goals set under its 78-billion-euro ($102 billion) bailout from the European Union and International Monetary Fund.

"I do hope this budget will pass in parliament," Prime Minister Pedro Passos Coelho told reporters in Bucharest, before attending a European Union summit.

In Thursday's strikes, production halted partially at Galp's two refineries while Lusa transmitted no news items on Thursday as journalists started a four-day protest against an announced 30 percent wage cut for next year.

The CDS has said the government should focus more on spending cuts and less on tax hikes.

But Portas, who had remained silent since the budget was presented, said the party would toe the coalition line.

"The CDS values stability at a particularly critical moment for Portugal," he wrote, adding that the party would help improve aspects of the budget. Parliament will vote on the budget in the first reading on October 31, then it will be scrutinised in committees.

Analysts say that while the resilience of the Social Democrat-led (PSD) government is now guaranteed in the short term, the Portuguese are fast losing patience with austerity.

"The health of the coalition is not the real problem -- CDS could not really go against the Social Democrats before local elections next year," said Adelino Maltez, political scientist at Lisbon Technical University.

"The problem is Portugal's condition as a protectorate that has led to a lack of confidence by the people in the main parties while the crisis is certain to get worse."

The popularity of the Social Democrats is at record lows and below that of the opposition Socialists.

Passos Coelho said the budget reflected negotiations with lenders. "It is a strong instrument to complete the adjustment programme that we are implementing," he said.

On Thursday the IMF urged Portugal to stick to its budget overhaul, calling it "imperative" for the country to reduce its high debt levels so that it can return to debt markets to finance itself.

Portuguese benchmark 10-year bond yields have fallen to below 7.8 percent -- levels last seen before the April 2011 bailout request -- after hitting record highs of over 17 percent at the start of the year.

(Additional reporting by Andrei Khalip and Filipa Cunha Lima in Lisbon and Radu Marinas in Bucharest; Editing by Ruth Pitchford)

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