Government to make tax slashes a priority

Portugal’s new Aliança Democrática (AD) government has promised to bulldoze through nine election pledge measures “immediately” including lowering IRS tax, on housing, education and European funds.

IRS tax cuts will benefit earners with income of up to €39,791, easing the tax burden on incomes between the 3rd and 6th tax brackets.

It means there will be a total tax reduction worth €1.5Bn on 2023, with the idea to concentrate the lion’s share of the tax reductions between the third and sixth tax brackets where the majority of the middle class lie.

As for corporation tax, the new government has pledged to cut IRC from 21% to 15% and reduce vehicle tax on cars.

However, the IRC tax reductions would be done gradually at a rate of 2% per annum with taxes falling to 19%, 17%, and 15% to 2026.

Currently, SME’s already pay an IRC rate of 17% — well below the general company tax rate of 21% on the first €50,000 of taxable revenues, while companies located in the interior of Portugal pay 12.5% under the same terms.

The measures will be discussed at meetings of the Council of Ministers in the coming weeks with cutting income taxes a priority. That may be relatively easy, but getting them through parliament is likely to be more tricky.

The centre-right coalition led by Luís Montenegro may be able to count on a smooth passage for some of its manifesto promises given that over half of the programme is similar to the previous PS socialist government’s pledges.

But not only; it has also taken policies from the manifestos of each of the other parties with a sea in parliament – including Chega.

Of the 60 measures under debate over the next two days are no less than 32 that came from the PS Socialists (covering the sectors of transports, energy, forests, housing, mobility, health and defence).

There are 13 measures from the electoral programme of CHEGA (focused on tourism, defence, the conclusion of the selection process for Lisbon’s new airport, and the TGV high-speed rail network); six from Iniciativa Liberal, three from LIVRE, three from Bloco de Esquerda, two from PAN and one from PCP communists (who presented a motion of rejection of the programme long before it was presented…)

The idea is that ‘there is something for everyone’ in this programme that needs to pass if the government is to be able to roll-up its sleeves and ‘get to work’ (as it has said time and again it must, and ‘can’t wait’ to do so).

But the reality is that the smallest left-wing parties are ‘sulking’: their only focus is on blocking AD as much as possible, bearing in mind that it has no working majority.

The Bloco de Esquerda has already presented ‘a motion of rejection’ of the AD blueprint for its four-years in power.

PS Socialists have said through parliamentary leader Alexandra Leitão that they will be abstaining from any and all motions of rejection.

Some of the new government’s immediate priority policies are:

• Reduction of personal (IRS) income tax up to the 8th bracket — with focus on alleviating the tax burden on the middle class. This is just one of the tax measures that was part of the AD programme that includes reductions in corporate income tax too, aimed at ensuring “effective taxation of profits at a rate of 15%, as well as the gradual elimination of the progressive State surcharge and municipal surcharge” (which loss of revenue for municipalities to be made up by compensatory measures in the State budget). The government also plans to exempt performance bonuses from contributions and taxes up to the equivalent of a monthly salary.
• Performance pay supplement in the civil service to create individual career plans for public sector workers, as well as a performance pay supplement / variable bonuses based on merit.
• The AD document presented to parliament on reiterates the commitment to a rapid decision on the location of Lisbon’s new airport and the start of its construction as soon as possible.
• Increasing the elderly supplement to € 820 euros by 2028. This is one of the solutions proposed to combat poverty in Portugal (remember it has proved almost impossible to lift one in five citizens from the risk of poverty for decades). AD proposes to increase the Solidarity Supplement for the Elderly (CSI) to a reference value of €820 by 2028. The intention is to bring it “into line with the national minimum wage in the following legislature, and to improve access to social benefits so that those who really need them can benefit from them,” reads the programme.
• Teachers’ service time to be recovered over five years. This is one of the last government’s major ‘struggles’ as it refused to countenance recovery of  six years, six months and 23 days effectively stolen from teachers by previous administrations. AD proposes to resolve this conflict that has caused the loss of so many days in the classroom (due to teachers’ strikes) by repaying teachers, slowly, over five years (counting 20% of the six years, six months and 23 days each year).
• Revisiting labour changes of the Decent Work Agenda. The government also intends to “revisit” the labour changes approved under the last government’s Decent Work Agenda, stating that “one year after the entry into force of (this agenda), it is necessary to evaluate the results of this first year of implementation on the ground, namely in Social Dialogue and with all the partners“.
• Housing – The housing policy will be based on five pillars, with the first focusing on increasing supply (private, public and cooperative), under which a programme of public-private partnerships is proposed for “large-scale construction and rehabilitation of both general housing and student accommodation”. The second is based on the realisation that it is necessary to promote “stability and confidence” in the rental market and includes measures such as “reviewing and speeding up mechanisms for the rapid resolution of disputes in the event of non-compliance with contracts”.Thirdly, the government is maintaining support for “vulnerable tenants”, realising that “it takes time to increase the supply of private and public housing”. The fourth pillar is made up of support for young people to buy their first home, through tax exemption and a public guarantee to make it possible for banks to give 100% mortgages. The final main focus is on repealing the “wrong measures” of the last government’s controversial Mais Habitação (More Housing) programme. These ‘wrong measures’ included a number of penalising changes to AL (Alojamento Local) — thus investors/ property owners could end up having a great deal to celebrate (see article to come). Again, everything is dependent on this programme being approved in parliament.

Text: [email protected] and [email protected]

Photo: Portugal’s new Minister of Finances, Joaquim Miranda Sarmento (Source: Government of Portugal)