It now seems there will be no alternative than to raise taxes, an action that Prime Minister José Sócrates has always claimed he wouldn’t take and a hypothesis he again threw out during a recent RTP television interview. However, the majority of Socialist Party (PS) members, contacted by Lusa news agency this week, have admitted the necessity of increasing taxes as part of measures to balance the public coffers. “For an exceptional situation, exceptional measures are necessary,” argues one of José Sócrates’ key colleagues.
The Minister of State and Finances, Luís Campos e Cunha, has described the country’s budget situation as “worse than hoped”. Meanwhile, Jorge Coelho, co-ordinator of the PS Commission, confirmed that he was “shocked and astonished” at the news that the deficit had increased to 6.83 per cent, an amount that the Minister for State and Finance said is “the highest of the euro zone”.
“At the moment, it’s simply not enough to cut public service salaries,” says João Cesar das Neves, a PS economist. “We’ve got to close down services and change the way the system is run.”
Economists believe the first thing that should go is the toll-free SCUT roads, while certain costs in the national health service should be paid for by patients themselves or prescription charges should be raised. “We’ve got to implement an emergency plan of action to see us out to October,” believes economist António Nogueira Leite. “If we implement phased-in measures, then it should refill the coffers, although public salaries and career progression will need strict adjustment.”
Economist João Ferreira do Amaral believes, “it is inevitable that taxes will have to go up, and the sooner the better”. Diogo Leite Campos is also an advocate of stringent measures saying that the government has to get tough on tax evasion.
Measures debated this week
At the time of going to press, an extraordinary meeting of the Council of Ministers was in progress, at which a package of measures to reduce the deficit were due to be approved.
The measures were not to be revealed directly after Tuesday’s meeting, but only at the monthly parliament debate the following day. However, it has been widely rumoured in the press that one measure to help reduce the deficit is to increase tax on food.
Government considering raising
IVA on foodstuffs
Portugal could soon have among the highest value added tax (IVA) tariffs in the EU. In a bid to control the country’s spiralling budget deficit, the government could scrap the medium taxation on foodstuffs at five and 12 per cent and increase them to 19 per cent.
It is even possible that the VAT tax rate could be raised to as much as 20 per cent. In the UK, items are taxed at 17 per cent and in Spain at 16 per cent.
The hotel and restaurant industry is extremely concerned about the possible increase, since many contracts with suppliers have already been signed for this year based on existing price levels.
Cabrita Neto, president of the Associação dos Industriais de Hotelaria e Similares do Algarve (AIHSA), the association for the Algarve hotel and related industries, comments: “This would be a hammer blow for the region’s tourism sector and would weaken the sector’s ability to compete with other rival destinations.”
Cut backs are essential
Economist João César das Neves has been quoted in the national press as saying: “This government has a majority and has to begin some serious cutting back. There needs to be an investment programme as well as a programme aimed at cutting costs.”
Oliveira Martins warns that a public deficit of this size could well push up interest rates and the cost of financing the public debt.
According to daily newspaper Público, the measures will “demolish the Freebie State” with income tax and value added tax rising, social security contributions going up, prescription charges increasing, more expensive road tolls, among other measures.
“Be prepared for everything. I am prepared to do what’s necessary to raise economic growth and development in this country,” José Socrates has warned journalists.
• The Resident will be bringing you a full report in next week’s paper on exactly what measures have been decided upon and how they will affect those living in Portugal.
