Tim D Wilkie, Partner in Madeiran advisory firm Corporate and Treasury, has issued a briefing confirming that the main measure affecting Madeira in a newly-announced financial package aimed at tackling Portugal's deficit is an increase in its VAT rate from 12% to 13%, and even this is said to be temporary. It will be applied from 1st June, but will be reversed once the deficit is reined back below the 2.6% level forecast for the current year.

The VAT increase is even seen as beneficial locally, says Mr Wilkie, since it will result in an increase of Euros 80m in the island's share of Portugal's VAT take. The central government has also forgiven Maderia's accumulated debt to the treasury.

The Government has assisted the creation by Portuguese banks of a Euros 5m fund to assist investment in companies establishing themselves in Madeira. Known as the SDEM, the fund will be headed by Dr Paulo Neves, former Corporate Finance Director of Citicorp Portugal, and an expert in structured products.

Madeira's relatively benign treatment by Lisbon no doubt has something to do with the fact that the Government's majority in Parliament is dependent on the four Madeiran members of parliament. The Madeiran PSD MP´s vote as a block on instructions from Madeira and not from their party whip.