Lisbon braced for new protests as Coelho unveils harsh new budget

However the country's embattled prime minister vowed to stay the course of austerity despite the political damage that it is doing to his party.

His Socialist opponents may have swept the board in a regional election in the Azores at the weekend, but Conservative Pedro Passos Coelho said he would not flinch from a strategy that has strained the patience of working people who took to the streets in their tens of thousands in frustration at the weekend.

The budget was presented in parliament at around 6pm and outlined the harshest measures since last year's €78 billion (£62.8bn) bailout.

It is set to introduce income tax rises which Finance Minister Vitor Gaspar has already described as "enormous."

The measures, which will also include pension cuts, a financial transaction tax and higher property taxes, could push Portugal into a recessionary spiral.

But the government is intent on carrying on regardless, ignoring evidence that troika-prescribed austerity measures just don't work.

Tax revenue is falling despite the imposition of higher tax rates.

Government receipts fell 2.4 per cent in August as the effects of tax increases were more than offset by a weakening economy.

Mr Gaspar had already revealed the most significant measures in the budget, reducing the number of income tax bands from eight to five and expanding their reach, raising tax on the lowest incomes from 11.5 per cent to 14.0 per cent.

Tax on the €20,000 (£16,121) to €40,000 (£32,242) band will rise from 35 per cent to 37.0 per cent.

And tax on incomes above €80,000 (£64,492) will rise from 46.5 per cent to 48.0 per cent, bringing the top rate into play €70,000 (£56,430) earlier than previously.

The austerity measures have sparked increasing popular resistance.

Demonstrators planned to encircle the Parliament building for the budget announcement.

And CGTP-Intersindical, Portugal's biggest trade union confederation, has called a 24-hour general strike on November 14.

The Socialist Party is pledging to vote against the budget when it is put to a vote in parliament at the end of the month.