Portugal: Government tax credits plan ‘lacks ambition’ – parliamentary allies

Page created: Monday, 21 August 2017 13:57 GMT

Tax Burden

Lisbon, Aug. 21 (Lusa) – Portugal’s Socialist government wants to earmark €200 next year to relieve the tax burden on low earners, in line with a promise it made in 2015 and which it hopes to be able to keep in 2018, but the other two parties in its parliamentary support base, the Left Block and the Communist Party, accuse it of lacking ambition in this respect.

The goal of lowering income tax on earners in the lowest brackets was contained in the government’s programme, which stated the objective as “increasing the progressivity of [personal income] tax”, to be done “through the increase in the number of brackets”. These were reduced to five from eight as part of economic reforms implemented under Portugal’s euro-zone bailout – what the then finance minister, Vítor Gaspar, himself labelled a “brutal increase in taxes”.

The programme also foresaw the creation of an “annual salary complement” in the form of a tax credit – effectively a negative tax – whose value would be “determined as a function of income and the composition of the household”, and which would aim to constitute “an additional mechanism to combat poverty, as well as an incentive to [people] joining the job market”.

These intentions were not put into practice and only in the government’s Stability Programme for 2017 to 2021, unveiled in April and submitted to the European Commission, did it state its intention for 2018 to create a new support mechanism for those on low incomes. The measure was not fully outlined, but it was estimated that it would cost €200 million in the first year.

The National Reforms Programme, which was presented at the same time, refers to an “alteration of the IRS [personal income tax] brackets underway” whose main aim was said to be “fostering a fairer tax policy that favours greater social cohesion”, but without providing details.

In interviews since then, government officials have several times indicated that they are firming up these plans.

The measure is one that the Socialist administration is negotiating with the two other parties that make up its support base, but which have stated publicly that the €200 million earmarked for it is insufficient and have tabled counter-proposals. The Left Block is calling for €600 million to be spent on the measure, while the Communists want as many as 10 income tax brackets – twice the current number.

The discussion, which will be central to the 2018 state budget, is to be resumed when negotiations restart on the contents of that document. the budget must be submitted to parliament by 15 October.