Smokers face tax hike

news: Smokers face tax hike

Finance Minister, Bagão Félix, has prepared taxpayers for another year of cutbacks and pay freezes. Addressing the nation last Monday, Félix warned people to prepare for more sacrifices and made clear that there would be increases on “non-essential consumer goods” such as tobacco, next year. He also pledged to eradicate tax ‘loopholes’ that favour only high earners, called for a clampdown on “fiscal tax havens” and said his government’s eventual goal was to introduce performance-related pay into the state sector.

Félix’s austere tone contrasted sharply with that of Prime Minister, Pedro Santana Lopes, who recently pledged that salary increases for 2005 would compensate for the “diminished earning power” of workers. But, perhaps aware of budgetary constraints, Lopes had qualified his remarks by saying that future gains depend on growth. “If we increase productivity there is always more to distribute,” he announced.

In his speech, Félix acknowledged that the immediate economic outlook would be no better than last year, when the former Finance Minister, Manuela Ferreira Leite, had warned that the budget was still not balanced. Félix conceded that the protracted recession had depleted his government’s coffers. “Receipts from IRS (personal taxation) and IRC (corporate taxation) have been insufficient to pay for spending on health and education,” he said. “Around 60 per cent of all taxes go on state salaries and pensions,” he added. He paid tribute to his predecessor, acknowledging that she had undertaken “important steps to establish fiscal stability”, but admitted that the government still needed another two billion euros to balance the budget.

As Bagão Félix warned that he considered salary increases of above four per cent demanded by unions to be “unrealistic” and “absolutely impossible”, the government’s stringency brought criticism from left-wing opposition parties. The leader of the Bloco de Esquerda, Francisco Louçã, claimed that “the Portuguese are fed up of always losing out”, and Socialist Deputy, Joel Hasse Ferreira, said Félix “lacked the capacity to resolve the nation’s social problems”. He said his record compared unfavourably to that of Marcello Caetano, Salazar’s successor. “Caetano was doing a good deal better at the end of the 1960s,” said Ferreira.

Nobre dos Santos, the leader of the country’s public sector union, FESAP (Frente Sindical da Administração) was particularly critical of the idea of introducing wider pay differentials and incentives into the state sector, alleging it was open to abuse. “It is absolutely reprehensible because the pay scale in the state sector is pre-defined. We don’t want to reward someone simply because he is a friend of the boss, as happens so often in the private sector,” he said.

Bagão Félix’s goal is clearly to reduce the size of the state budget and carry out a major overhaul of the civil service. “One thing is certain. It is only possible to control government finances by introducing changes into the public sector,” he said.