Salaries go down as Social Security goes up
Private workers will lose one salary, whilst public employees will lose two
by Ana Tavares [email protected]
It was the first time that a Government measure was received with such unanimous opposition, but when Pedro Passos Coelho announced last Friday (September 7) that all workers would see their monthly contribution to Social Security increase by seven percentage points as of 2013, everyone – regardless of their political stance – agreed to disagree with the Portuguese Prime Minister.
In a public statement scheduled for 7.20pm, just 25 minutes before the start of the Portuguese National Team’s football match against Luxembourg (a choice considered by many as a diversionary tactic), the Prime Minister dryly announced that, as part of the Government Budget for 2013, all public and private workers will now see 18% (instead of 11%) of their monthly pay cheque go directly to the Social Security’s safes.
This means that in a year private workers will lose the equivalent of at least a month’s salary, whilst public employees, despite having one of their bonuses restored, will be left without two wages.
At the same time, companies will also start contributing less to the Social Security, as the Taxa Social Única (TSU) will drop from 23.75% to 18%.
The government originally planned to cut holiday and Christmas bonuses for public workers and pensioners – it was ruled unconstitutional by the Constitutional Court in July to treat the public workers differently to other workers. The new measures are being introduced to balance the books, now that the holiday and Christmas reductions cannot be enforced.
However, many are already questioning whether these new measures are constitutional, as pensioners will still remain without their bonuses.
Carlos Abreu Amorim, vice-president of the social democratic parliamentary group, told news agency Lusa that he was “perplexed” by the debate around the measure’s constitutionality. “What we have right now is the Prime Minister’s declarations regarding a law that will be presented on October 15. The Constitutional Court inspects rules, not intentions or statements.”
Government will receive a further €500m
With this new plan, the Government estimates to pocket a further €500 million compared to the previous “unconstitutional” measure, increasing the total to €2.5 billion.
However, since the Prime Minister also announced that those with lower income will benefit from a tax credit in their IRS, this amount saved will be lower, but still enough to cover the hole caused by the court’s ruling. Passos Coelho is yet to explain what the Government will do with the remaining money.
Claiming that “the national financial emergency that the country has been immersed in since 2011 is not over yet”, this was the third time in 15 months that the Prime Minister officially announced austerity measures.
It’s also a departure from Passos Coelho’s political pledges, as before becoming the chief of the Portuguese Government, he had promised not to touch the workers’ salaries or pensions, instead opting to increase the consumption taxes – a measure he took just nine days after coming into power by raising the rate of IVA.
Speaking at a press conference regarding troika’s fifth evaluation on September 11, the Minister of Finance Vítor Gaspar tried to mitigate the effects of the Prime Minister’s disastrous speech.
The Minister of Finance assured that the cuts on public workers’ salaries are “temporary” and announced a series of new measures for 2013, including cuts on those receiving public sector pensions of over €1,500 per month (cuts estimated to be between 3.5% and 10%), a rise in the monthly contributions of green receipt workers for Social Security (from 29.6% to 30.7%), as well as a reduction of the IRS tax brackets, which will increase the average tax payment.
Another important announcement was the agreement by troika to extend the budget deficit targets: instead of achieving a budget deficit of 4.5% in 2012 and 3% in 2013, Portugal now has to meet a target of 5% in 2012 and 4.5% in 2013. For 2014, the budget deficit target imposed by troika is 2.5% of GDP.
However, one of the most surprising facts presented by Gaspar is that the Portuguese economy is now expected to contract by 1% in 2013, instead of the Government’s projection of a 0.2% growth.
Like Passos Coelho, the Minister of Finance could not escape criticism from his own Government peers. The current Government is a coalition between the Social Democratic Party (PSD) and the Popular Party (CDS), but that didn’t keep João Almeida, a spokesperson for CDS, from blasting the Minister of Finance during a meeting on September 12.
According to the Portuguese newspaper Expresso, João Almeida, along with some PSD members, questioned Gaspar regarding the amount of the deficit reduction imposed by the Government (around €4.9m and nearly six times more than the reduction agreed with troika), as well as the real impact of the TSU decrease, which according to him, is not helping fight unemployment.
The minister’s response was equally strong, saying that João Almeida’s speech was “ludicrous”.
Vítor Gaspar asserted that these measures will help companies and were imposed by the Government, not troika.
Backlash across the board
Whilst the Social Democratic Party (PSD) tried to contain the unparalleled level of criticism against the Government, by denying that there was a tax increase, the political party couldn’t defend itself from being attacked internally – Luís Montenegro, the president of PSD’s parliamentary group called it a “bigger burden for workers”. The Young Social Democrats (JSD) sent a press release to Lusa with a set of more “equitable” proposals and urged the Government to take “measures to cut back on public expenditure”.
A former minister in two PSD-CDS coalition governments, Bagão Félix, said that this was the “final nail in the coffin” for the welfare state, whilst the leader of the opposition, António José Seguro, said that he will not be an accomplice to the Prime Minister’s measures and requested an emergency meeting with the Portuguese President Aníbal Cavaco Silva.
And, despite the TSU decrease from 23.75% to 18%, it seems that not even business people are supporting the new measures, which according to the government were designed to stop the escalating unemployment rate and are expected to create 50,000 jobs in the next two years. “Companies hire people when they need them, they won’t do it because of this measure,” said the president of the Portuguese Commerce and Services Confederation, João Vieira Lopes.
Another issue raised is that due to the drop in salaries, people will be spending less money, thus affecting companies, particularly smaller businesses and those that don’t export.
Summing it up, José Gomes Ferreira, the economy editor at television channel SIC, said: “This Government deserves an award because it didn’t manage to please anyone. It doesn’t please workers, it doesn’t please business owners and it doesn’t please unions.”
When the new measure comes into action, Portugal will be the second country in the European Union with the highest contribution tax for the Social Security, only surpassed by France currently at 22%.
Citizens react online
The new austerity measures triggered a wave of criticism against the Government not only in the press, but also on social networks such as Facebook.
Business newspaper Diário Económico made an unprecedented move and took a stand against the Government with a cover story that urged readers to sign a petition against the tax increase. Published on the same day, but before the Government’s announcement, the online petition can be found at www.economico.pt and has been signed by nearly 38,000 people at the time of the Algarve Resident going to press.
On Facebook, apart from the several viral posts mocking the Government, there was one post in particular that got a wide reaction from the Portuguese people. After a less than sympathetic speech, Pedro Passos Coelho tried to redeem himself by posting a statement on his Facebook wall, saying that this was one of “the hardest speeches a Prime Minister can give”.
Addressing the Portuguese as “friends”, he also wrote that the “sacrifices aren’t over yet”. Signing the message as “Pedro”, the Prime Minister’s post has received more than 50,000 comments at the time of going to press.
Organised by a group of citizens against the austerity measures, the protest “Que se Lixe a Troika” is taking place in Lisbon on September 15, from 5pm. As we went to press, over 33,000 people had said they were attending on the event’s Facebook page.
Some of the new measures
Until the end of the year:
• Added tax of 5% on all real estate properties worth over €1 million on top of property tax (IMI)
• Tax increase on capital gains from 25% to 26.5%
• The monthly contributions for Social Security increase from 11% to 18% for all public and private workers
• The companies’ contributions for Social Security (Taxa Social Única – TSU) will decrease from 23.75% to 18%. According to a study commissioned by the Government and troika, this measure is expected to create 50,000 jobs in the next two years, a GDP growth of 0.5% and an increase in exports between 1% and 2%. Over a year ago, the Minister of Finance questioned the impact of such a measure by saying that “the Government has serious doubts regarding the viability of a general decrease of the TSU”.
• The money saved by companies due to the TSU drop will be monitored by the Government. “There will be a mechanism that will place these savings in an account so that these resources remain in the hands of the company and not distributed to shareholders and business owners,” said Gaspar during an interview with television channel SIC.
• Green receipt workers will see their Social Security contributions increase: from 29.6% to 30.7%
• Reduction of the number of IRS tax brackets but the maximum tax bracket remains the same (46.5% + 5% of solidarity tax)
• Public workers on fixed-term contracts in the firing line: they will be the first to be laid off, said the Minister of Finance during the presentation of troika’s fifth evaluation
• Termination of the ADSE, the special health system for public workers
• The 148,000 public pensioners with a monthly income of over €1,500 will see their pensions cut between 3.5% and 10%:
• Pensions up to €2,000 will be cut by 3.5%
• Pensions between €2,050 and €4,150 will be cut by 3.8% and 9.9%
• Pensions over €4,150 will suffer a 10% cut
• Stricter rules for those on unemployment benefits and the Social Integration Income (Rendimento Social de Inserção – RSI)
• New tax on luxury items, including cars, boats and planes
• The Government will be closing down dozens of foundations, which will represent savings of €150m to €200m.