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Portuguese tax rates for VAT and IRS hit record highs

Despite taxes in Portugal hitting an all time high, the State cannot fill a budgetary black hole in the public finances worth €6.15 billion.

Between January and June, the Government managed to raise an extra €907 million in VAT and IRS compared with the same period last year.

But the new Finance Minister, Vítor Gaspar, has revealed that the black hole in Portugal’s public finances has tripled in just one month to €6.15 billion.

According to statistics published by the Directorate-General for the Budget (Direcção-Geral do Orçamento-DGO), the State budget has tripled from €2.1 billion accumulated in May to €6.15 billion registered in June – an overspend of €4.05 billion in just 30 days.

Portugal’s state deficit has therefore grown at a rateof €34 million per day between January and June while in the last month that rate has accelerated to €134 million per day.

The Minister of Finances said that the overspend could be explained by steeper expenditure in relation to the first five months of the year, essentially because of interest rates and other financial responsibilities such as motorway concessions worth €590 million.

In June alone, €2.13 billion was spent on interest to pay off around €8 billion in public debt, according to data from the Institute of Public Credit Management (Instituto de Gestão do Crédito Público – IGCP). Between January and May, €876 million were paid in interest payments.

The Government claims that it has overall managed to improve its budget deficit compared with the same period last year by €1.63 billion, thanks to increased taxes. VAT receipts have grown by €817 million while IRS receipts have increased by €90 million.

It means that the Government has raked in an extra €907 million compared with the same period last year.

The Government is also expecting to trawl in around €800 million by Christmas from the extraordinary tax on the Christmas holiday subsidy while daily tax receipts in the first six months of the year reached €85 million – even so it was not enough to fill Portugal’s budget deficit.

In the first half of 2011, the State’s actual expenditure fell 3.4% compared with the same period in 2010. Public sector salary cuts contributed towards this fall, enabling the Government to save 8% on staff expenditure, while receipts rose by 4.8% against 2010.