Budget in Portugal includes special 4% levy on earnings


LISBON HAS unveiled an uncompromisingly tough budget for 2013 involving the biggest direct tax increases in living memory as the government struggles to keep Portugal’s €78 billion bailout programme on track.

Finance minister Vítor Gaspar said yesterday that income tax increases would include a special 4 per cent levy on earnings. The average tax rate would increase from 9.8 per cent of earnings to 13.2 per cent.

The minister said he understood public pressure for Portugal to be given more time to reach budget deficit goals, but critics had failed to explain how this could be financed. “We have to stay on course,” he said, because taking the “easy route” would lead to a loss of international credibility, a “vicious circle” of indebtedness and low growth.

More than 80 per cent of a planned reduction in the budget deficit next year is expected to come from a projected €4.3 billion increase in government revenue, representing 2.6 per cent of national output, of which income and corporate tax rises will account for about €3 billion.

To comply with the bailout terms Lisbon needs to cut the deficit by the equivalent of 1.6 percentage points of gross domestic product next year, excluding the effect of extraordinary measures in 2012.

On a positive note, Mr Gaspar said Portugal would balance its current account deficit in 2013 thanks to an increase in exports over the past two years. Corporate and family debt had also fallen and banks were better capitalised.

Hostility towards the budget proposals, which include sweeping income tax rises of up to 30 per cent, has fuelled street protests.

Several senior politicians, fearing that excessive austerity could trigger a social crisis, have urged Pedro Passos Coelho, the centre-right prime minister, to show restraint on fiscal consolidation. On his official Facebook page, Aníbal Cavaco Silva, Portugal’s conservative president, said it was not right to try to meet deficit-reduction targets “at any cost”.

– (Copyright The Financial Times Limited 2012)