Portugal (11) -- Analyses -- 2010

More about the taxes

13.05.2010

Portugal’s top value-added tax rate will rise to 21 percent from 20 percent, companies will face a tax surcharge of 2.5 percent of income and individuals will pay an additional 1 percent to 1.5 percent, Socrates said. The tax increases will last through the end of 2011.
Government subsidies for state-owned companies will be reduced, and pay for senior government officials and the salaries of executives at state-owned companies will be reduced by 5 percent, he said. “All these measures were designed to have the smallest recessionary effect possible,” Socrates said. Although its borrowing costs have eased after the European Union unveiled an almost $1 trillion euro-rescue package, Portugal must still cut its budget gap to meet the EU’s limit of 3 percent by 2013 from 9.4 percent last year, the fourth-highest in the euro region. The EU on May 10 unveiled a program of loans and bond purchases in a bid to stop Greece’s debt crisis from spreading after the extra yield that investors demand to hold Portuguese and Spanish debt instead of benchmark German bonds surged last week to the highest since the euro’s introduction.
Portugal sold 1 billion euros ($1.3 billion) of 10-year bonds yesterday, getting more demand than at previous auctions. The country’s debt agency priced the 4.8 percent bonds due 2020 to yield 4.52 percent, 181 basis points below last week’s high. “Markets are really accepting Portuguese sovereign debt in better conditions than two or three months ago,” Finance Minister Fernando Teixeira dos Santos said yesterday in a Bloomberg Television interview. The government last week lowered its 2010 deficit target to 7.3 percent from a previous goal of 8.3 percent. Portugal sees a shortfall of 2.8 percent in 2013. Earlier this year Portugal announced other spending cuts, including delaying some investments on railway projects and limiting state workers’ salary increases. The previous measures triggered strikes and the new moves may provoke further labor unrest, opposition politicians said.
“We think this is a road to disaster,” Jeronimo de Sousa, head of the Communist Party, said today on SIC Noticias television. “People have to react with protest and struggle.” Today’s measures were supported by the Social Democrats, the biggest opposition party, ensuring the minority Socialist government will win parliamentary approval. Spanish Prime Minister Jose Luis Rodriguez Zapatero yesterday said his government will cut public wages and investment and suspend a pension increase as it looks to speed pledged deficit cuts. Ireland and Greece have already announced wage cuts for public workers. Ireland had the highest deficit in the euro region last year at 14.3 percent, followed by Greece with 13.6 percent and Spain with a deficit of 11.2 percent. Moody’s Investors Service on May 5 said Portugal may have its credit rating cut for the first time as the country struggles to reduce its deficit and revive economic growth. The Bank of Portugal predicts an expansion of 0.4 percent this year and 0.8 percent in 2011, following a contraction of 2.7 percent last year. The government is forecasting growth of 0.7 percent this year.
Portugal’s economy grew at the fastest pace in three years in the first quarter. GDP rose 1 percent from the fourth quarter, when it contracted a revised 0.3 percent, the Lisbon- based National Statistics Institute said yesterday.

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