Portugal's constitutional court on Friday rejected four out of nine contested austerity measures from this year's budget in a ruling that deals a blow to government finances, but is unlikely to derail the bailed-out country's reforms.
The measures rejected by the court should deprive the state of some 900 million euros ($1.17 billion) in net revenues and savings, according to preliminary estimates by economists.
The whole package of new austerity measures introduced by the 2013 budget is worth about 5 billion euros.
"It's a lesser evil ... Putting it into perspective, a good manager and leader should not have difficulty finding room in a budget to accommodate this cut," said Joao Cantiga Esteves, economist at the Lisbon Technical University.
The 13 constitutional court judges scrutinized articles of the 2013 budget, which imposed the largest tax increase in living memory and imposed pay cuts for civil servants and pensioners.
They rejected cuts in pensioners' and public servants' holiday bonuses, as well as reductions to sickness leave and unemployment benefits. They upheld tougher measures such as a reduction in the number of tax brackets which alone brings an estimated revenue of more than 2 billion euros.
The government has called an extraordinary cabinet meeting on Saturday. It has to cut the budget deficit to 5.5 percent this year from 6.4 percent last year, when it missed the target but was nevertheless lauded by its EU and IMF lenders for its austerity efforts.
Analysts consider the outcome manageable and say the government should be able to cover the hole with additional spending cuts it has been working on at the request of its lenders. Analysts say the lenders could also give Portugal some more leeway in terms of budget targets.