Portuguese Prime Minister Pedro Passos Coelho (C) accompanied by Silva Peneda (C-R) president of the Portuguese Social Concertation on arrival for the meeting with the social partners(Photograph: Mário Cruz/EPA)

Prime Minister Pedro Passos Coelho is to meet with the social partners this Monday to discuss alternatives to the government’s controversial proposal to change social security contributions unanimously rejected by unions and bosses, including the possibility of hiking other taxes instead, as reported by all major newspapers.

According to financial daily Diário Económico, Passos Coelho will announce the replacement of the controversial measure that aimed to increase employee social security contributions from 11% to 18% while decreasing those paid by companies from just under 24% to 18% with a new tax equivalent to half a worker’s Christmas bonus and an increase in income taxes through the creation of new brackets.

Weekly newspaper Expresso also wrote on Saturday that the government could consider introducing a new tax equivalent to half a Christmas bonus while lowering company-paid social security contributions but only for those businesses able to create new employment.

Newspaper Público reported that the Portuguese Confederation of Industry (CIP) wants the government to go ahead with the cuts to company-paid social security contributions but proposes they should be supported by a 30% tax hike on tobacco products. Trade union confederation CGTP is proposing instead a new tax on financial transactions, a new bracket for corporate tax, a new 10% tax over dividends being paid to big companies’ shareholders and also measures to tackle tax evasion.

Council of State meeting

The alternatives are being discussed after the government admitted Friday it was ready to backtrack on its controversial austerity measures announced earlier this month that plunged the country into political and social turmoil. The statement released after the Council of State meeting convened by President Cavaco Silva said the government was available to “consider alternatives” to its proposal to introduce changes to social security contributions.

The controversial proposal, which Minister of Finance Vítor Gaspar was asked to explain during the Council of State meeting, was heavily criticised not only by opposition parties but also by junior coalition party CDS-PP and members of the prime minister’s Social Democratic Party (PSD). Also, thousands of Portuguese took to the streets in protest in 40 cities around the country in the biggest wave of demonstrations against austerity since Portugal asked for an international bailout last year.

Last Friday thousands of protesters demonstrated in front of the presidential palace in Lisbon where the Council of State meeting took place. Five people were arrested for skirmishes with the police, according to news agency Lusa.

End of the political crisis?

The statement released after the Council of State meeting also said the PSD and CDS-PP coalition partners had already settled their differences, after disagreements regarding the controversial proposal threatened to break up the government last week.

The Council of State was also informed that the problems that could affect the solidity of the coalition that supports the government have been overcome,” said the statement.

However, the political climate in Portugal is yet to be fully pacified. The leader of far-left party Bloco de Esquerda, Francisco Louçã, invited all opposition forces to go ahead with a no-confidence vote against the government in parliament.

In reply, opposition leader António José Seguro said the Socialist Party determined its own agenda and added he was pleased to know the government’s controversial proposal for social security contributions would not be going ahead.