LISBON—Portugal's government braced for more public backlash against its austerity program after it unveiled a budget proposal for 2013 that centered on sharp tax increases.

The document was the product of torturous preparation that included backtracking on core policy decisions and cabinet meetings lasting up to 20 hours, as the government struggled to find a balance between austerity and social and political stability. As Finance Minister Vitor Gaspar delivered the budget plan to Parliament on Monday, that balance seemed...