Santana Lopes Determined To Push Through Portuguese Income Tax Cut

by Ulrika Lomas, Tax-News.com, Brussels

25 November 2004

The Portuguese Prime Minister, Pedro Santana Lopes has signalled his determination to push through cuts in income tax despite calls from the country’s central bank for some fiscal belt-tightening.

Speaking at a dinner on Monday evening, Mr Santana Lopes commented that economic growth gave the conservative government a certain amount of leeway to “lessen the burden” on Portuguese citizens, and expressed the hope that by next year "people find they are paying less tax and public sector workers take home more pay".

However, the Bank of Portugal takes the opposite view. In the central bank’s latest fiscal report, it argues that consolidation is “more necessary than ever” now that the country has emerged from a deep recession, calling for measures to be put in place to ensure Portugal’s budget deficit remains below the European Union’s mandatory 3% of GDP ceiling.

Portugal become the first EU nation to breach the stability pact in 2001, although tax hikes and spending cuts have ensured that budget deficits have remained below 3% in the intervening years.

In addition to tax cuts, Portugal’s 2005 budget includes some offsetting revenue raisers, such as reductions in the amounts of corporate tax deductions and the creation of a more aggressive compliance regime.

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