Portugal's government has announced its 2013 budget, which outlined the harshest measures yet under the country's $101bn rescue plan.

Vitor Gaspar, finance minister, confirmed on Monday that the average income tax rate would rise from 9.8 per cent to 11.8per cent.

He said the budget was the only way for the country to meet its targets under the bailout.

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The government also announced spending cuts worth $3.4bn, while around 12,000 public-sector workers were to lose their jobs.

The cuts are intended to reduce the budget deficit of Portugal to 4.5 per cent in 2013, which is still 1.5 per cent more than the target of three per cent set by the European Union.

The budget faced opposition from anti-government protesters, as protests took place outside the parliament buildings.

Antonio Jose Seguro, leader of the main opposition Socialist Party, said the measures were "a fiscal atomic bomb" that would wreck the economy.

In September, the government decided not to raise social security contributions next year from 11% to 18% after protests against the proposed move.

The government expects the economy to shrink by at least three per cent this year and by one per cent next year, although many economists forecast a greater contraction in 2013.

A general strike is planned for November 14.

Unemployment is already at record highs above 15 per cent and the government expects it to rise to 16.4 per cent next year.