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Portuguese budget heads for court ruling

Public administration workers protest against the new budget policies in Lisbon, on November 6, 2010. Portugal's highest court will decide whether the country's 2013 austerity budget is constitutional.

Portugal's highest court will be asked to decide whether the country's 2013 austerity budget is constitutional, President Anibal Cavaco Silva announced late on Tuesday.

"By my own initiative, the constitutional court will be called on to decide on the conformity of the 2013 state budget" with the country's constitution, Cavaco Silva said during his New Year's Day address.

"The execution of this budget will bring about lower income for citizens through higher taxes and lower social payments. Everyone will be affected, but some more than others, which raises doubts on the fairness of redistribution efforts," he said.

The president's decision could weaken the government of Prime Minister Pedro Passos Coelho, but it did not dampen investor enthusiasm, as the Lisbon stock exchange jumped by more than 3.0 percent in afternoon trading on Wednesday, owing mainly to advances on financial issues.

Cavaco Silva unveiled his initiative just a few days after he ratified the budget, which was passed by parliament in November, and just hours after its implementation.

The president said that if he had not signed the budget, Portugal would have slid further into crisis and sent a "extremely negative" message internationally.

Several leftists groups have made known their intention of seizing the constitutional court on the budget law.

Experts believe new taxes on some pension payments and a decrease in the number of tax rate brackets could be vulnerable to a review by the court.

Cavaco Silva highlighted a suspension of "holiday bonuses or an equivalent sum" paid to civil servants, and an "exceptional contribution of solidarity" by pensioners who earn more than 1,350 euros ($1,800) as measures that could be rejected.

The 2013 budget is expected to bring Portugal 5.3 billion euros in savings, 80 percent financed by tax increases that Finance Minister Vitor Gaspar called "enormous" but indispensable to pull the bailed-out eurozone country out of almost two years in crisis.

Another austerity measure was the suspension of a holiday bonus for civil servants who earn more than 1,100 euros per month.

The austerity measures were drawn up as part of a Portuguese bailout by the European Union and International Monetary Fund worth 78 billion euros that was agreed to in May 2011.

By asking the court to review the budget, Cavaco Silva runs the risk of sparking political drama, one Portuguese newspaper warned on Wednesday.

"An eventual disavowal ... would inevitably destabilise the executive branch," Diario de Noticias said in an editorial.

But Portuguese banking shares were more impacted by an agreement in Washington to avert a US budget deadline that could have spelled trouble for the world's biggest economy, and the PSI-20 index of leading stocks leapt by 3.06 percent to 5,828.18 points in afternoon trading.