Saturday

25th Mar 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.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

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.

Rome summit tries to restart EU momentum

EU 27 leaders in Rome to celebrate the 60th anniversary of the signing of Treaty of Rome, in bid to counter rising challenges after Brexit. But new ideas are scarce.

Column / Brexit Briefing

The Union under threat

The effect of Brexit will be much more profound on Northern Ireland than on Scotland. Some kind of border controls with Ireland seem inevitable.

'Mr Putin steps into French elections'

Putin treated France's anti-EU firebrand, Le Pen, as if she had already won the elections. "I have my own viewpoint ... identical to Russia's", she said.

Stakeholders' Highlights

  1. European Gaming & Betting Association60 Years Rome Treaty – 60 Years Building an Internal Market
  2. Malta EU 2017New EU Rules to Prevent Terrorism and Give More Rights to Victims Approved
  3. European Jewish Congress"Extremists Still Have Ability and Motivation to Murder in Europe" Says EJC President
  4. European Gaming & Betting AssociationAudiovisual Media Services Directive to Exclude Minors from Gambling Ads
  5. ILGA-EuropeTime for a Reality Check on International Day for the Elimination of Racial Discrimination
  6. UNICEFHuman Cost to Refugee and Migrant Children Mounts Up One Year After EU-Turkey Deal
  7. Malta EU 2017Council Adopts New Rules to Improve Safety of Medical Devices
  8. Nordic Council of MinistersNordic Energy Research: How to Reach 100 Percent Renewable Energy
  9. Party of European SocialistsWe Must Renew Europe for All Europeans
  10. MEP Tomáš ZdechovskýThe European Commission Has Failed in Its Fight Against Food Waste
  11. ILGA-EuropeEP Recognises Discrimination Faced by Trans & Intersex People
  12. Nordic Council of Ministers25 Nordic Bioeconomy Cases for Sustainable Change