Government says it will cut taxes by €1.5Bn promised, but not €2.6Bn

The Council of Ministers of Portugal’s new centre-right coalition government says it is “true and undeniable” that it will fulfil its election pledge to shave €1.5Bn off IRS taxes compared to 2023 in response to accusations it had lied to the public.

However, it said that the headline “Montenegro in double IRS tax slash by the Summer” published by paper Expresso on Friday was false, and it would not be making tax cuts of €2.6Bn as reported.

However, opposition parties to the left and right quickly moved to make political capital by saying the government had hoodwinked the Portuguese.

The Coordinator of the left-wing Bloco de Esquerda party, Mariana Mortágua, posted on social media that the reduction in personal income tax “is, after all, a hoax”.

“The only promise that wasn’t a joke is the reduction in corporate income tax on the profits of large companies. After a week, the press is already apologising to readers for having believed Montenegro”, she said.

In an interview with RTP on Friday, the minister of Finances, Miranda Sarmento, made clear that the €1.5Bn tax reduction referred to by Prime Minister Luís Montenegro in a TV debate on the government’s programme was in fact only €200 million on top of a €1.3Bn in IRS tax cuts already foreseen in the State Budget for 2024, and which is already now in force, explaining that the measure did not mean €2.6Bn.

However, of the €1.5Bn in tax cuts, the €1.3Bn referred had already been earmarked in the State Budget 2024 by the previous PS socialist government.

Indeed, the Aliança Democrática (AD) government led by Luís Montenegro says making greater tax cuts would be “irresponsible” from a budgetary point of view.

In a communiqué, the Presidency of the Council of Ministers later stated that the statements on reducing taxes made by the Prime Minister in parliament outlining the government’s programme, were “factually true and undeniable”.

“A reduction in IRS taxes on income up to the 8th tax bracket would foresee an overall reduction (in taxes) of around €1.5Bn on last year.”

However, it stressed that “no other member of the government or coalition partners who support it have ever indicated other tax reductions of the same order to be added on to the Law for the State Budget 2024”.