Saturday

23rd Sep 2017

Portugal unveils tax hikes to meet EU bail-out demands

  • A fresh general strike has been called for mid-November after the Portuguese government imposed a further round of tax hikes. (Photo: Pedro Ribeiro Simoes)

Portugal's centre-right government unveiled across-the-board tax hikes on Wednesday (3 October) to ensure the country meets debt and deficit targets required under the terms of its bailout.

Finance minister Vitor Gaspar said that plans for an "enormous increase in taxes" in 2013 are necessary for the embattled country to meet its 2013 deficit target of 4.5 per cent.

Thank you for reading EUobserver!

Subscribe now and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

The Portuguese economy is expected to report a 3 percent contraction in 2012 followed by a further 1 percent dip in 2013 - a third consecutive year of recession. Unemployment is also projected to peak at 16.4 percent rather than the 15 percent figure previously projected.

Among the headline tax rises were a one-off 4 percent tax on all incomes, with earners in the top band of €153,300 expected to pay an additional 2.5 per cent solidarity levy.

Gaspar added that the government would reduce the number of income tax brackets in 2013 to five from eight, pushing millions of workers into higher tax bands.

The government also intends to raise taxes aimed at the rich by increasing taxation of capital gains, assets, financial transactions, tobacco and luxury goods. However, it backed down on plans to increase employee payroll taxes from 11 per cent to 18 per cent.

The country's largest trade union, the the General Confederation of Portuguese Workers, announced on Tuesday (2 October) that it will call its 600,000 members out on general strike against austerity on 14 November. But the country's other, slightly smaller and more moderate confederation, the General Workers' Union, said it would not join the walkout.

The country is still expected to receive the remainder of its €78 billion bailout package agreed with the troika of the European Commission, IMF and European Central Bank which runs until mid-2014.

Meanwhile, the country is also laying the ground for an expected return to the bond market in September 2013 by selling €10 billion of 18 month and 3 year bills at rates between 3.5 and 5.5 percent.

Yields on 10 year government bonds have also fallen sharply in 2012 from 16 percent to 7.5 percent, although this figure remains higher than the 7 per cent figure regarded as the tipping point beyond which debt servicing cannot be maintained.

Portugal has been shut out of the bond market since requesting emergency funding in April 2011 and had its credit rating downgraded to junk status in January.

Despite the country's economic woes, the troika expects Portugal's debt mountain to peak at just over 120 percent in 2013 before falling.

A troika statement released in September insisted that the Portuguese debt burden "remains sustainable and will be on a firm downward trajectory after 2014."

Agenda

Growth and budgets in the spotlight this WEEK

A European Parliament vote on the EU budget for 2013 and a multi-billion euro European Commission proposal to create more jobs dominate this week’s agenda.

Portugal in crisis after 1mn say No to austerity

Portugal is in political crisis as it struggles with a major popular backlash in the face of troika-approved austerity measures that would raise social contributions for employees.

Economic gloom poses problems for bailed-out countries

Recession-hit Portugal is likely to miss its deficit target this year, the troika of international lenders is expected to conclude in September. Meanwhile, lower growth in Ireland may also bring troubles further down the road.

Analysis

Merkel-Macron: An EU motor in the making

Merkel's re-election is expected to revive the Franco-German EU motor, but the German leader and France's new ruler are still searching for a common vision.

May seeks EU grace period

Eagerly awaited Brexit speech was foggy on details, but May pledged to honour financial commitments while calling for a two-year transition deal after the UK left.

May seeks EU grace period

Eagerly awaited Brexit speech was foggy on details, but May pledged to honour financial commitments while calling for a two-year transition deal after the UK left.

Analysis

Merkel-Macron: An EU motor in the making

Merkel's re-election is expected to revive the Franco-German EU motor, but the German leader and France's new ruler are still searching for a common vision.

News in Brief

  1. Dutch state appeals ban on taking air-polluting measures
  2. May proposes 2-year transition period after Brexit
  3. May to call on EU's 'sense of responsibility'
  4. Catalonia has 'contingency plans' for independence vote
  5. Last German polls confirm Merkel's lead
  6. EU to step up sanctions on North Korea
  7. Tusk calls 'euro summit' in December
  8. Report: May to seek two-year EU transition

Stakeholders' Highlights

  1. EU2017EEEU Finance Ministers Agreed to Develop New Digital Taxation Rules
  2. Mission of China to the EUGermany Stands Ready to Deepen Cooperation With China
  3. World VisionFirst Ever Young People Consultation to Discuss the Much Needed Peace in Europe
  4. European Jewish CongressGermany First Country to Adopt Working Definition of Antisemitism
  5. EU2017EEFour Tax Initiatives to Modernise the EU's Tax System
  6. Dialogue PlatformResponsibility in Practice: Gulen & Islamic Thought
  7. Counter BalanceHuman Rights Concerns Over EIB Loan to the Trans Anatolian Pipeline Project
  8. Mission of China to the EUChina Leads the Global Clean Energy Transition
  9. CES - Silicones EuropeFrom Baking Moulds to Oven Mitts, Silicones Are a Key Ingredient in Kitchens
  10. Martens CentreFor a New Europeanism: How to Put the Motto "Unity in Diversity" Into Practice
  11. Access MBAGet Ahead With an MBA Degree. Top MBA Event in Brussels
  12. Idealist QuarterlyIdealist Quarterly Event: Building Fearless Democracies With Gerald Hensel