The centre-right government in Portugal has agreed to look for alternatives to a social security tax rise a week after huge anti-austerity street protests.
Previously, it had planned to raise contributions next year from 11% to 18%, to meet the conditions of Portugal’s international bailout.
Prime Minister Pedro Passos Coelho announced his decision at a meeting with President Anibal Cavaco Silva.
Thousands of protesters chanted slogans outside the presidential palace.
Some firecrackers and bottles were thrown and five arrests made at the protest, as the presidential state council met late into the night in the capital Lisbon.
Portugal was recently given an extra year to reduce its deficit, following the latest quarterly review by international lenders overseeing its 78 billion-euro ($101 billion) bailout.
Last Saturday, tens of thousands of protesters took to the streets of Lisbon and other Portuguese cities.
President Anibal Cavaco Silva called the meeting of his state council amid concern that Portugal’s main trump card in the eyes of foreign investors, its cross-party consensus on austerity, was in tatters.
A statement released afterwards said: “The council was informed of the government’s readiness to study, within the framework of the social bargaining process, alternatives to changes in the social security rate.”
It also said that differences between the two parties which make up the ruling coalition had been overcome, and they both remained committed to the bailout’s targets.
The weekly newspaper Expresso said the prime minister was preparing a new cut in holiday subsidies for workers, in place of the tax rise.