Portuguese Austerity Measures Launched

by Ulrika Lomas, for LawAndTax-News.com, Brussels

21 June 2005

The 'austerity measures' announced earlier this year by the Portuguese government in order to reign in the country's burgeoning deficit have come into force, according to reports in the European media.

A number of tax increases will be put in place over the next three years, alongside a crackdown on tax evasion and banking secrecy as the new socialist administration sets about reducing the deficit, which could hit 7% of GDP this year - more than double the limit set by the EU stability pact.

The measures to be put in place by Prime Minister Jose Socrates and his administration include an increase in the standard rate of VAT to 21% from 19%, a new income tax rate of 42% on salaries of EUR60,000, and increased taxation on oil products and tobacco.

The government will also seek to prune a "vast list" of tax benefits and exemptions and set a maximum limit on corporate tax benefits, and will freeze public sector promotions, reduce sick-leave payments, and gradually increase the retirement age for civil servants from 60 to 65.

Finance Minister, Luis Campos e Cunha announced recently that the plan is expected to cut public spending by EUR4 billion, which will help to bring the defict under the 3% of GDP ceiling set for eurozone countries by 2008.

It is hoped that the introduction of austerity measures will head off EC action over the country's breaching of the threshold.

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