Ex-Finance minister says “no drama” for the country if budget not approved
A former Portuguese Finances minister says that while it would be better if agreement between the governing PSD party and opposition can be reached over the State Budget 2024, it’s not a big drama if it isn’t.
In an interview with business daily Negócios published on Tuesday, economist João Leão, who was the minister of Finances from 2020 to 2022, said that if the State Budget is rejected by the opposition, there is no need to call a general election, and that the government can govern under the twelfths regime.
In the twelfths regime, the Government is limited to executing 1/12 of the expenditure made in the previous year each month. The Budgetary Framework Law (LEO) provides that when the draft State Budget law is rejected, the validity of the previous State Budget law is extended.
The Deputy-Rector of ISCTE (University Institute of Lisbon) says that if the PS party can make important changes, it should support the government, but admits that as an opposition party, it might be difficult.
João Leão said that the government’s counter proposal for the Youth Tax made on 3 October, which would last for 13 years, was a “significant step in the negotiations and added that the IRC tax cut by just 1% meets the government half way but that in general the government’s proposal does not meet the red lines imposed by the PS party.
The representative of the European Court of Auditors who was interviewed on 4 October, after the government made its “offer than can’t be refused” and before the PS gave its answer, said that negotiations could be held on the basis of revenues not used from the IRS Jovem (IRS Youth) policy.
Last week the Prime Minister Luís Montenegro unveiled a draft State Budget that he believed could “not be turned down”, one that aimed at garnering support from the PS and included a slight corporate tax cut and significant changes to the IRS Youth policy.
The government is proposing a modest reduction in corporate tax, halving the originally planned cut (2%) to just 1%.
This reduction is paired with key suggestions from the PS, including incentives for companies to invest in increasing employee wages and company capitalisation, as well as lowering vehicle tax.
The Prime Minister has made concessions by agreeing to meet the PS party in the middle over the youth tax and adopt the PS model from the 2024 budget, with three adjustments that reflect the PS’s electoral platform.
The main changes include expanding the IRS Youth programme to be applied universally, rather than being limited by academic qualifications.
Montenegro proposed extending tax benefits for young workers: a 100% tax exemption in the first year of employment, 75% from the second to fifth year, 50% from the sixth to ninth year, and 25% from the tenth to thirteenth year. This effectively extends the tax relief period from five years to 13.