€2.4bn support package against inflation “a handful of nothing”
From left: Minister for Infrastructure and Habitation Pedro Nuno Santos, Minister for Labour, Solidarity and Social Security Ana Mendes Godinho, Minister for Finance, Fernando Medina and Minister for Environment and Climate Action Duarte Cordeiro at the press conference to explain the support package against inflation on September 6

€2.4bn support package against inflation “a handful of nothing”

Early on Wednesday morning, Expresso published an article explaining how the government is preparing to “bury” a law passed in 2008 ensuring that pensions keep rising with inflation. The move followed the grand announcement on Monday evening by prime minister António Costa of a €2.4 billion package designed to help families and pensioners through the winter’s bleak economic crisis.

The build-up to the PM’s announcement was theatrical. All through Monday, possible measures to ease the country through rising prices and the spiralling costs of energy were being trailed. Finally, in time for the 8pm evening news (a moment most people in the country tune in to hear what is happening), the PM presented the government’s €2.4 million programme.

The PM said he was outlining measures that would be further explained in a press conference the following morning, led by ministers of finance, environment, housing and infrastructure, and labour.

There was the distinct feeling that ‘the government was up to something’, almost immediately borne out by opposition parties who railed the country “is being tricked”; that the government presented “a fraud”, “an illusion”, “crumbs” – while everyday working people interviewed on Tuesday agreed they were looking at “a handful of nothing”.

First to the measures:

  • There is to be an extraordinary payment of €125 to every non-pensioner earning up to €2,700 per month, plus a €50 payout to every dependent child. In other words, a couple with two children should receive in October an extraordinary one-off tax-free payment of €350.
  • IVA on electricity is to be reduced from 13% to 6% (albeit this has to go through parliament in order to be approved). The idea is that this measure could come into effect (if approved with the desired urgency) by October 1.
  • Pensioners to receive equivalent of half pension in October (one-off payment), with increases for 2023, depending on amounts received (increases of 4.43% for lowest pensions, up to €886 per month; 4.07% for pensions between €886-€2,659, and 3.53% for higher pensions).
  • Families are promised a 10% reduction on gas bills if they ‘migrate’ to the regulated market.
  • Any rent increases this year cannot exceed 2%, while landlords will be ‘compensated’ through their IRS/IRC tax returns.
  • Transport costs for 2023 are to be ‘frozen’ (no increases).
  • Fuel costs will receive further reductions, lopping the equivalent of €14 off every €50 spent on petrol, and €16 in respect of diesel.

Taking care to stress the importance of Portugal ‘spending within its means’ and ‘balancing the books’, the PM left questions very much to the following day, by which time the perceived ‘tricks’ in the programme were being highlighted.

Leaving aside the frustrations and accusations levelled by political parties in opposition, Expresso highlighted one of the perhaps least attractive ‘tricks’ – the seemingly positive announcement that IVA on electricity was reducing to 6%. It was an extremely clever description that belied reality: IVA where it is charged at 13% will indeed be reduced to 6%. But where it is charged at 23%, the percentage stays.

Basically, running a fridge could end up slightly cheaper, but when it comes to heating the house through winter “not really”, says the paper.

The government’s intervention is focused on reducing IVA to 6% for the first 100kWh of consumption per month. This level of usage will run fridges, televisions, the coffee machine, for example – but it won’t cover much more than that.

Just one 2000-watt oil heater, for example, run for four hours per day, every day, “can consume 240 kWh per month”, explained Expresso.

Cooking with electricity? “One ceramic hob used for an hour a day will consume 40.5 kWH per month”.

And when it comes to the hundreds of thousands of families reliant on gas bottles (not piped gas), there has been no mention whatsoever of any limits on prices that might be charged.

Updates on this point may come on Thursday when environment minister Duarte Cordeiro is scheduled to outline further measures to do with energy.

As for the sizeable universe of households with piped gas, there is further uncertainty. The government has stressed that it will allow domestic clients and small businesses to move from the liberalised market to the regulated market – estimating this way they could save up to 70% on bills which will start coming in in October (when gas prices are expected to increase by as much as 150%). But there is still no certainty that the regulated market will have the gas supplies it needs to service this influx.

As to pensions, controversy is at a peak. The one-off ‘bonus’ in October (subject to the same level of tax as regular payments) appears to have been designed to reduce the amount the government would be legally bound to increase pensions by in 2023.

Bloco de Esquerda’s Mariana Mortágua, a young woman with great talent when it comes to interpreting numbers, explained straight away on Monday evening to pensioners: “The announcement made by António Costa is not an increase in your pension. The law for updating pensions was unfrozen during the last legislature, meaning that in 2023, as a result of the combination of an increasing GDP, economic growth and inflation, there was to be a very generous updating of pensions. What António Costa is saying to pensioners is that he will be revising this law and bringing the increase down…”

This has been borne out by Expresso’s story claiming the government is intent on burying the law so that new rules (less beneficial for pensioners) will be in place by 2024.

President Marcelo Rebelo de Sousa, currently in Brazil for commemorations of the country’s 200 years of independence, has skirted round the controversy, stressing the government’s package is indeed “well thought out”, “balanced” even, but that he “would have liked to have seen more given to families – a more ambitious programme”.

He added, in line with the message coming from leader writers, “if inflation continues” (as so many fear that it might), the government will be forced to come up with further measures” – and, as we write, there has still been no word on support for businesses, many of which have warned they cannot see how to make ends meet.

Right now, inflation in Portugal is running at 9%. According to Expresso, the government is anticipating that this will have come down to around 7% by 2023. As minority party LIVRE has stressed, ‘the devil is in the detail’ – and right now the devil seems to be at work in every quarter.

By NATASHA DONN

natasha.donn@portugalresident.com