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Portugal's New Leftist Government To Ease Austerity

by Ulrika Lomas,, Brussels

27 November 2015

Socialist Party leader António Costa has taken office as Portugal's new prime minister and has promised to loosen the shackles of the country's fiscal consolidation program by reversing some of the austerity measures introduced by his predecessor.

Costa became the country's' leader last week after Parliament voted to terminate the short-lived administration of former Prime Minister Pedro Passos Coelho's conservative coalition. That coalition won the most votes in the October 4 general election but it did not secure an overall majority.

Costa leads a hard-left coalition including the Left Bloc and the Communist Party. It is anticipated that he will cancel Portugal's austerity program by cutting taxes, particularly on low- and middle-income taxpayers, while reversing most of the cuts in public spending carried out by the former government, which were aimed at steering Portugal towards balanced budgets.

On the tax front, the Government is to study the current personal income tax structure. It has suggested that it may alter tax brackets in the future to help low income taxpayers in particular.

It has also proposed a reduction in social security contributions for those earning less than EUR600 (USD640) a month.

In addition, food supplied in restaurants will be subject to the 13 percent reduced rate of value-added tax instead of the 23 percent standard rate, and tax incentives will be introduced for small companies.

Under the austerity program originally agreed with the EU, it is envisaged that the budget deficit will be reduced to 0.2 percent by 2019, from 3 percent this year. Costa's administration intends to relax this target, instead looking to achieve a deficit of 1.5 percent by 2019. However, the new Government will need the EU's approval.

TAGS: tax | pensions | value added tax (VAT) | Portugal | tax incentives | public sector | budget | food | social security | individual income tax | Europe

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