The cut in employer payroll taxes (TSU) is perhaps one of the few memorandum items that can be seen as expansionary. However, this policy created great controversy in Portugal, in part because it will have to be funded from higher VAT rates, in part because the party supporting the current government appears to be unsure about its original pledge on this matter.
In any case, the motivation for this "fiscal devaluation" is clear - wages are high, compared to productivity, and this contributed to the huge imbalances of the Portuguese economy. According to some authors, wages need to fall by around 20% before the country can restore its lost competitiveness. Without any action, the economy would correct this imbalances only over a slow and painful adjustment process involving very high unemployment rates: Extrapolating from studies that find that real entry wages tend to be about two percent higher when the unemployment rate is one percentage point lower, the unemployment rate would have to increase by at least ten percentage points, to a Spanish-sounding level of 21%.
Cutting payroll taxes could make the adjustment process less hurtful, as it would reduce the wages paid by employers without damaging the incomes of workers. According to the estimates above, cutting TSU by four percentage points (from their current level of 23.75%) would reduce the increase in the unemployment rate by two percentage points. The remaining competitiveness gap could then be closed by the other items in the memorandum - public sector cuts and higher productivity stemming from structural reforms -, without further increases in the unemployment rate beyond the already unprecedented 13% predicted for 2013.
In my view, the main issue with this idea is actually whether firms would be able to ensure that the cuts in the payroll tax would not be passed on to their employees. Previous evidence from somewhat similar reforms in Chile and Finland suggests that wage moderation in this context can be weak. Several results also indicate that "rent sharing" is an important phenomenon in Portugal (as in many other countries): Employees - in particular those with more tenure - tend to be able to extract a considerable share of any windfalls in profits in the form of higher wages.
For the TSU cuts to be successful, they should be directed towards industries where labour demand is more sensitive to the wage rate. Many of them will be industries which are exposed to international trade but not necessarily low-wage industries. A national agreement about wage moderation involving the main unions would also be important, as well as cuts in labour adjustment costs (some of which are also in the memorandum even if perhaps somewhat timid).