Portuguese taxes are strangling aspirations and growth says party leader

 In Associations, News, Property, Property Tax, State debt, Tax

The leader of Portugal’s centre-right CDS party Nuno Mello has a lot on his plate to resurrect the fortunes of his party of 50,000 party members. He has the populist far right party Chega nipping at his heals and trumpeting the migration of around 100 members from Chega back to CDS is a case, as the English say, of ‘one swallow hardly making a summer’.

Still, in his bid to resurrect his party’s fortunes, Nuno Mello gave what amounted to a political sermon to his party faithful flock on all that was wrong with the policies and governance of Portugal’s ruling PS Socialist Party at the International Club of Portugal on Thursday. It sounded rather like a party political manifesto from Margaret Thatcher. But was it really relevant, does he stand any chance of ever being in government, and did he have anything new to say?

Text Chris Graeme Photos: ICPT

The last time that Portugal’s CDS party had a place in government was in a coalition with the centre-right PSD party led by Prime Minister Pedro Passos Coelho from 2011-2015 in what was to be its second coalition as CDS-PP in the 21st century.

It was at a time of profound crisis for the country which was effectively ruled economically and financially by a troika of overseas lenders involving the IMF, ECB and EC which enforced a chemotherapy of draconian reforms and austerity in return for a €78Bn bailout which while paid off, reduced the standard of living for the Portuguese from which they have never really recovered.

Sadly, in the minds of many in the general public, the CDS-PP coalition is remembered for a time of suffering, and the submarine and amphibious armoured personnel carrier scandals in defence contracts. It sank to obscurity thereafter, going from 25 MPs in the elections in 2011, and 0 today after years of internal strife and infighting.

Its current leader Nuno Mello is a battle-hardy fighter with a long track record in Portuguese politics. A lawyer by training — as so many political figures in Portugal have always been — he was an MP in the Portuguese parliament in 1999, 2002 and 2005. He was a Euro MP in 2009 and is today.

He ran for the CDS leadership in 2022 and won with 854 votes or 73% of the total, and it is said that at times he has had as many if not more social media followers than either the Prime Minister António Costa or the PSD leader Luís Montenegro.

Yet an increase in party members from 33,000 in 2014 to 50,000 in 2022 does not mean election votes. Nevertheless, Nuno Mello hopes to restore its fortunes like a phoenix from the flames. The question is can he do it and compete against Chega, the far-right populist party led by André Ventura which is already the third largest political force in terms of votes in the land despite its controversial views on gypsies and the frightening fact that a considerable number of its supporters think non-white races are less intelligent.

The CDS, which has seen better times, today flies under the values flag of family, property and liberty; the party of less tax, less State intervention, of bolstering the position of the family financially and socially. This is not surprising being a conservative party of largely Christian family values in a Portugal that is becoming increasingly less racially and culturally homogenous and more heterogeneous with the influx of immigrants and relocators from around the world, many of which are not Christian.

Family, Property and Liberty

Its latest political slogan is ‘CDS Faz Falta a Portugal!’ which roughly translates as ‘Portugal needs a centre right political party like the CDS”.

At the luncheon Mello highlighted the “extremely profound degradation of democratic institutions” in Portugal and elsewhere in the world, and chose to speak about three core values that made even more sense in Portugal today: Family, Property and Liberty.

On liberty and democracy, Mello made reference to Ukraine – which is fighting for such values — in the presence of the Ukraine ambassador to Portugal, Volodymyr Kozlov. “Ukraine is fighting for the essence of our values, its people are dying for democracy, and I am on your side and the side of the Ukrainian people.”

A normal country, he said, preserves the family as the natural nuclear basis of society, creates the conditions so that people can improved their lot in terms of wealth and can be property owners. This is the correct way, he said, of doing things in the “social elevator” and which the centre-right believes makes sense.

Nuno Mello remarked that today Portugal’s political parties were “too ideological” which was “worrying”.

The family and property were “endangered concepts” with levels of compromise that called into question liberty itself as a core concept.

Absurd fiscal policy

Mello then moved on to taxes. In Portugal, he said, 45% of families don’t pay IRS income tax. “This is a weather vane pointing to poverty and it is certainly not good. It means we have very low salaries”.

He aded that now the number of people dependent on the State stands at around 52% yet back in 1980 it was 32%.

“That means we have an economic model that creates a huge amount of people who are dependent on the State, while 16% of the population pay 80% of Portugal’s taxes”, he said.

And continued: “At the same time we have reached a record number and amount of taxes; not only corporation tax but taxes in general. The Sate weighs us down and gets in the way rather than helping”.

Mello points out that out of the 38 OECD countries, Portugal is the third worst in terms of tax competitiveness. Portugal has attained record levels of absolute debt (€280Bn), exceeding for the first time the €200Bn mark in 2023. Public spending has equally reached record levels going from €102Bn in 2022 to €107Bn in 2023 and “we’re on track for €113Bn”.

“We have a country that has increased taxes, increased public spending, increased debt, but there are still those who argue its OK”, he said.

This meant in terms of families “we have an economically perverse model based on illegitimate appropriation” of the results their hard work and efforts . Taxes, he said, are not an Act of God, they are paid “from out efforts and are effectively on loan” to the State.

“There are those who pay 50% of their income in taxes meaning the results of your efforts from January through December are handed to the State. You can say, well that’s only on the rich, but in fact we’re all paying more taxes. It’s not normal”, he slammed.

Wrong economic model

Nuno Mello said the economic model was “wrong” with an appropriation that was disproportionate to unrelated efforts “All of us know that we have to pay taxes and through this redistribution of wealth create opportunities for others”. But at times it was clearly absurd.
Mello gave the example of a house he had bought in which the IMT tax was calculated wrong. He hadn’t paid enough and immediately went to rectify the issue and pay the balance owed. However, he was informed he would have to pay the whole correct amount again and ask for a refund for the amount that had already been paid earlier.

“When I paid what I though I had to pay it was paid digitally and straight away, but to get the refunds I have to wait and am still waiting for the money. This is not normal in any country in the world”.

The necessary consequence of such an economic model which is wrong, is this: low salaries and anaemic growth which is completely pernicious for the national economy.

The CDS president said since a healthy a middle class was the first weather vane to gauge successful economic policies, that should be the desire of any government’s policies, raising those on the sidelines on lower incomes into the middle class, and helping them to go up in the elevator.

In Portugal what we’ve had is a middle class that is being squeezed and a few people in the middle class becoming very wealthy. Under normal circumstances we would see the middle classes growing, but in Portugal we’ve got a middle class that is decreasing and this means the economic model is not successful; a model which keeps us in a low wage economy and can be explained by the weight of the State and levels of taxation that are totally absurd.

Higher salaries

In order for an employer to give an employee on a salary of €1000 a wage increase of €1,500 per month net, the employer will have to pay a further €1,140 more to the State on top of that, of which the employee only gets €500 more while the State gets the lion’s share of €647.

“I think this is perverse and inexplicable because I think these employers would be open to paying more if the State allowed them to pay better salaries. And you can’t blame the bosses when businesses have to pay so many taxes that they don’t have the cash-flow to increase salaries”, he reflected.

And continued: “We are pushing for more salaries, we are on the side of those who create wealth, and we do have deep social concerns, but to deal with these we have to be open to upping salaries so that people can live better, but for people to live better the State has to do its bit, and the State doesn’t in Portugal”.

Mello said that when (the State) is increasing debt, public spending, and has such a large public administration, the only thing the State has got are the resources of those who are working and this leaves little room for employers to increase salaries.

Mello pointed out that 77% of young Portuguese receive salaries of between €414 and €1,158 so from an employment point of view is hardly stimulating for young people who are more qualified, but then enter the work market only to be on these salaries they are offering.

“And in a EU market with the free movement of goods, labour and capital it’s easy to see why thousands of Portuguese choose to go to other countries and earn there what they can’t earn here”.

This lack of capacity is something that bosses have to face. If you decapitalise employers, families and employees and increase the weight of the State, you create dependencies in votes, with governments only think about elections while the country sinks to the bottom, and this is an economic model that we’re campaigning against.

“I think the State needs to create the conditions to capitalise families, for employees to have better salaries, so that companies can invest more. Portugal is a country that has, for the most part, been governed by the centre-left, and for most of this time the PS socialist party should for once in its life allow the centre right in to help govern.

Overtaken by new EU members

Mello downplays the recent GDP growth successes the government has taken credit for (2.5% expected for 2023), with better growth figures than France or Germany in the first quarter.
“When framed against reality, the Socialist Party Government shows us that since 2015 we have been overtaken by Poland, Hungary, and before this by Estonia and Lithuania, and now we have Rumania looming up in the rear-view mirror. These are the countries in our league, you can’t compare Portugal with Germany or France”.

“I know that at every year Portugal receives millions and millions of EU cohesion funds and yet there are Eastern European countries in our league that are doing much better than Portugal, many of which, like Rumania that are further behind us but have grown a lot faster (3.2%) and are now overtaking us, yet Portugal does not improve its position against these countries”.

Property seen as a sin

Finally the CDS leader reflected on property ownership which should be an aspiration and said that the Soviet Union had fallen because it didn’t meet its citizens’ natural aspirations to own something fo their own from the fruits of their labour. “In Portugal being a property owner is seen as a sin and taxes are a punishment” which, said Mello, was not normal.

In Portugal, he said, 70% of families either own their home or are buying it which is a “good thing”. The problem is that the plethora of property taxes are so disproportionately high that property owners are being turned into tenants of the State are paying the State to be home owners.

“The Government’s housing programme ‘Mais Habitação’ which apart from not having the capacity to solve the housing problem, was being used to “gain votes at the voting booths through the coercive appropriation of what belongs to us,” said the CDS president referring to the government’s policy of the forced rental of long term empty properties and which he said was “unconstitutional”.