(LISBON) - Portugal said Wednesday its 2007 public deficit fell sharply to 2.6 percent from 3.6 percent in 2006, bringing the country into line with European Union fiscal guidelines.

"This is the lowest deficit in the past 30 years," Prime Minister Jose Socrates told a press conference as he cut the 2008 forecast shortfall to 2.2 percent of total economic output from 2.4 percent.

In 2005, Portugal had a public deficit equal to 6.1 percent of its gross domestic product, way above the 3.0 percent ceiling fixed in the EU Stability Pact which all members are supposed to abide by.

Socrates' Socialist government has introduced a series of austerity measures to shrink the deficit but on Wednesday, spurred on by the figures, he announced a cut in sales or value added tax to 20 percent from 21 percent.

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