Protesters outside parliament chanted "the people united will never be defeated"
The Portuguese government has revealed details of its draft budget for 2013, one of the harshest in the country's recent history.
Finance Minister Vitor Gaspar confirmed the average income tax rise would increase from 9.8% in 2012 to 13.2% next year.
Portugal was granted a 78bn-euro ($100bn; £63bn) bailout last year.
Mr Gaspar said the budget was the only way for the country to meet its targets under the bailout.
"We have no room for manoeuvre," he said.
"Asking for more time [under the bailout] would lead us to a dictatorship of debt and to failure."
He also announced spending cuts worth 2.7bn euros next year, which would include laying off 2% of the country's 600,000 public sector employees.
About 2,000 protesters gathered outside parliament on Monday to demand the resignation of the government, chanting: "The people united will never be defeated."
Mr Gaspar said the budget would allow Portugal to reduce its budget deficit to 4.5% in 2013. It must eventually get its deficit below the European Union target of 3% of GDP.
Portugal is currently experiencing its worst recession since the 1970s, with the unemployment rate above 15%, and predicted to rise to 16.4% next year.
Opposition Socialist Party leader Antonio Jose Seguro described the draft budget as "a fiscal atomic bomb".
Portugal's main trade union, the CGTP, said it was "an attack on the dignity of the people" and daily newspaper Diario Economico declared it "an insult to the Portuguese people".
Wages hit
As in Spain and Greece, Portugal has seen huge street protests against the austerity cuts that are needed to meet the demands of the bailout.
In September, the government decided not to raise social security contributions next year from 11% to 18% after protests against the proposed move.
A general strike is planned for 14 November.
The income tax rise in the budget amounts to a month's wages for many workers.
The budget also reduces Portugal's income tax brackets from eight to five, and there will be a one-off 4% surcharge tax on all workers' earnings in 2013.
Capital gains tax will increase from 25% to 28%.
The government expects the economy to shrink by at least 3% this year and by 1% next year, although many economists forecast a greater contraction in 2013.
Acceptance of austerity measures has turned to anger
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