(a) Portugal shall implement fully the fiscal consolidation measures foreseen in the 2011 budget amounting to around EUR 9 billion and the additional consolidation measures that the government has announced since then. To offset adverse budgetary trends and emerging risks to the achievement of the 2011 deficit target, Portugal shall tighten budgetary execution, implement the already approved one-time surcharge in the context of the personal income tax in 2011, frontload from 2012 to 1 October 2011 the increase in the VAT rate for natural gas and electricity and step up sales of concessions. The government shall also endeavour to adopt other consolidation measures of a permanent nature and/or frontload other measures planned for 2012. The ongoing process of a phased transfer of banks pensions funds to the State social security system shall exceptionally provide a buffer towards reaching the 2011 fiscal deficit target. The acquired assets of these pension funds shall not be used in a way detrimental to long-term sustainability.

(b) Portugal shall adopt measures to reinforce public finance management. Portugal shall implement the measures foreseen in the new Budgetary Framework Law, including setting-up a medium-term budgetary framework, prepare a medium-term fiscal strategy and establish an independent Fiscal Council. The budgetary framework at local and regional levels shall be considerably strengthened, in particular by aligning the respective financing laws to the requirements of the Budgetary Framework Law. Portugal shall step up reporting and monitoring of public finances, in particular arrears; it shall set up a strategy for the settlement of arrears, and reinforce budgetary execution rules and procedures. Portugal shall start the systematic and regular analysis of fiscal risks as part of the budget process, including the risks stemming from Public Private Partnerships (‘PPPs’) and SOEs.

(c) Portugal shall continue strengthening labour market functioning, notably by taking measures to reform employment protection legislation, wage setting and active labour market policies.

(d) In the energy sector, Portugal shall take measures to facilitate entry, promote the establishment of the Iberian gas market and review the support and compensation schemes for the production of electricity. For other network industries, in particular transport, telecommunications and postal services, Portugal shall adopt additional measures to promote competition and flexibility.

(e) Portugal shall continue opening up the economy to competition. The government shall take the necessary measures to ensure that the Portuguese State or any public body do not conclude, in a shareholder capacity, shareholder agreements which may hinder the free movement of capital or influence the management control of companies. The new Privatisation Law shall also be respectful to the principles of free movement of capital and not grant or allow special rights to the State. A revision of competition law shall be undertaken aiming at improving the speed and effectiveness of enforcement of competition rules.

(f) Portugal shall improve practices and rules for public procurement contributing to a more competitive business environment and to more efficient public spending.

(g) Portugal shall adopt measures to improve the efficiency and sustainability of SOEs at central, regional and local level. Portugal shall prepare a comprehensive SOEs strategy document reviewing the tariff structure and the service provision and a plan to tighten borrowing requirements as of 2012. Portugal shall implement ongoing plans to reduce operational costs by at least 15 % on average in central government SOEs outside the health sector and prepare an equivalent plan for regional and local government SOEs.

(h) Portugal shall implement the privatisation programme. In particular, public sector shares in EDP, REN and GALP, and, if market conditions permit, TAP, shall be sold in 2011. A strategic privatisation plan for Parpublica shall be prepared. The privatisation plan through 2013 shall also cover Aeroportos de Portugal, the freight branch of CP, Correios de Portugal and Caixa Seguros, as well as a number of smaller firms.

(a) The 2012 budget shall include a budget neutral recalibration of the tax system with a view to lowering labour costs and boosting competitiveness. The reform shall be developed in consultation with the Commission, the ECB and the IMF.

(b) The measures, defined in points (c) and (d), amounting to at least EUR 5,1 billion, shall be included in the 2012 Budget. Further measures, mostly on the expenditure side, shall be taken to fill any possible gap arising from budgetary developments in 2011. The government shall prepare an updated assessment of the budgetary situation and prospects in view of the discussion of the 2012 Budget with the Commission, the ECB and the IMF before its approval by the government.

(c) The budget shall provide for a reduction of expenditure in 2012 of at least EUR 3,5 billion including: a comprehensive reorganisation of the central administration eliminating duplicities and other inefficiencies; cuts in education and health; lower transfers to regional and local authorities; a reduction in public sector employment; adjustments in pensions; and reductions in capital expenditure and in other expenditure as set out in the Programme.

(d) On the revenue side, the budget shall include revenue measures totalling around EUR 1,5 billion in a full year including, inter alia: broadening the corporate and personal income tax bases by reducing tax deductions and special regimes; ensuring the convergence of personal income tax deductions applied to pensions and labour income; changes in property taxation by substantially reducing exemptions; broadening VAT bases by reducing exemptions and rearranging the lists of goods and services subject to reduced, intermediate and higher rates; and, an increase in excises. These measures shall be complemented by action to fight tax evasion, fraud and informality.

(e) Portugal shall put in place a strengthened legal and institutional framework for assessing fiscal risks prior to engaging in a PPP contract. Similarly, Portugal shall adopt a law to regulate the creation and the functioning of SOEs at the central, regional and local levels. Portugal shall not engage in any new PPP contract or create an SOE until the reviews and the new legal structure are in place.

(f) Local government administration in Portugal has currently 308 municipalities and 4 259 parishes. Portugal shall develop a consolidation plan to reorganise and significantly reduce the number of such entities. These changes will come into effect by the beginning of the next local election cycle.

(g) Portugal shall modernise the revenue administration by creating a single entity, reducing the number of municipal offices and addressing remaining bottlenecks in the tax appeal system.

(h) Portugal shall introduce legislation to reform the unemployment insurance system, including a reduction of the maximum duration of unemployment insurance benefits to 18 months, a cap on unemployment benefits to 2,5 times the social support index, a reduction in benefits over the unemployment spell, a reduction of the minimum contributory period, and an extension to certain categories of self-employed. Active labour market policies shall be strengthened after a review of current practices and an agreed action plan.

(i) The system of severance payments shall be brought in line with practices in other EU Member States, based on the specification in the Memorandum of Understanding.

(j) Regulations on overtime pay shall be eased and increased flexibility of working time arrangements introduced in line with the Memorandum of Understanding.

(k) Portugal shall promote wage developments consistent with the objectives of fostering job creation and improving firms’ competitiveness with a view to correcting macroeconomic imbalances. Any increase in minimum wages will take place only if justified by economic and labour market developments. Measures shall be taken to address weaknesses in the current wage bargaining schemes, including legislation to redefine the criteria and modalities of the extension of collective agreements and to facilitate firm-level agreements.

(l) An action plan shall be prepared to improve the quality of secondary and vocational education.

(m) The functioning of the judicial system shall be improved by implementing the measures proposed under the Judicial Reform Map and by conducting and auditing of the backlog cases in order to target measures to eliminate court backlog and foster alternative dispute settlements.

(n) The competition framework shall be improved by reinforcing the independence and resources of the national regulator authorities. Professional services shall be liberalised by improving the professional qualification framework and by eliminating restrictions on regulated professions.

(o) Regulated tariffs in electricity and gas retail markets shall be eliminated.

(a) The 2013 budget shall include fiscal consolidation measures amounting to at least EUR 3,2 billion aiming at a reduction of the general government deficit within the time-frame referred to in Article 3(3). In particular, on the expenditure side the budget shall provide for a reduction in expenditure in 2013 of at least EUR 2,5 billion, including: reducing expenditures in the central administration, education and health; transfers to local and regional authorities; reducing the number of employees in the public sector; and, lowering costs by SOEs.

(b) The budget shall include revenue measures including notably further broadening of corporate and personal income tax bases, higher excises taxes and changes in property taxation, yielding close to EUR 0,8 billion of additional revenue. Portugal shall improve the business environment by reducing administrative burden through the extension to all sectors of the economy of simplification reforms (Points of Single Contact and Zero authorisation projects) and by alleviating SME’s credit constraints including with the implementation of Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions ( 2 ).

(c) Portugal shall complete the elimination of the court backlog.

(a) Encourage banks to strengthen their collateral buffers and monitor the issuance of the government guaranteed bank bonds, which has been authorised up to EUR 35 billion in line with EU State aid rules;

(b) Follow closely the plans presented by the banks to reach a core Tier 1 ratio of 9 % by end-2011 and 10 % at the latest by end-2012. If the banks cannot reach the capital requirement thresholds on time, they might temporarily require public provision of equity for private banks through the established EUR 12 billion bank solvency support facility;

(c) Ensure a balanced an orderly deleveraging of the banking sector, which remains critical to eliminating funding imbalances on a permanent basis. Banks’ funding plans target a reduction in the loan-to-deposit ratio to about 120 % and a reduction of the reliance on Eurosystem funding during the duration of the programme. The Bank of Portugal shall ask banks to revise their funding plans by end-September. These funding plans shall be reviewed quarterly, starting from the second programme review. The Bank of Portugal shall take appropriate action in case of deviations from the banks’ funding plans;

(d) indicate clear periodic target leverage ratios for banks and step up the solvency and deleveraging assessment framework during 2011;

(e) Ensure that the state-owned Caixa Geral de Depósitos (CGD) is streamlined to increase the capital base of its core banking arm as needed; the necessary resources to increase the capital base should come from within the group. Complete the sale of Banco Português de Negócios after clearance from the Commission in accordance with competition and State aid rules;

(f) amend by end-2011 legislation concerning early intervention and resolution of banks as well as legislation concerning the Deposit Guarantee Fund and the Guarantee Fund for Mutual Agricultural Credit Institutions, with a view to protecting depositors and facilitate restructuring. In particular, these funds should retain the ability to fund the resolution of distressed credit institutions, but not to recapitalise them. Such funding shall be capped at the amount of guaranteed deposits that would have to be paid out in liquidation and be permissible only if it does not prejudice the ability of these funds to perform their primary function;

(g) amend by end-November 2011 the Insolvency Law to provide that guaranteed depositors and/or the funds (directly or through subrogation) will be granted a priority ranking over unsecured creditors in the credit institution’s insolvent estate and to better support effective rescue of viable firms;

(h) undertake to encourage private investors to maintain their overall exposures on a voluntary basis.