Portugal’s Finance Minister, Mário Centeno, patiently has explained that next year’s tax planning involves the tax burden on individual earners reducing, funded by rises in indirect taxation.
Centeno gave assurances that the rate at which VAT is charged will remain unaltered but that other indirect taxes will rise to fund income tax reductions.
This apparent contradiction was first aired a month ago as part of the 2017 State Budget proposal but some have had trouble understanding the economics.
The minister has not divulged which indirect taxes he will increase to pay for a reduction in income tax but is adamant that VAT will not be raised next year, although he still could narrow the range of goods and services in the reduced VAT bands without raising the headline rates.
The State Budget for next year provides for the end of the income tax surcharge which already has been alleviated in part for those on lower incomes.
As for which indirect taxes will rise, these already are noted in the longer term 2016-2020 taxation plan established as guidelines in the 2016 State Budget and include vehicle taxes, petroleum products, tobacco and stamp duty on consumer credit.
The biggest indirect tax rise this year has been on diesel and petrol to compensate for the low international oil price and hence lower than forecast VAT receipts.
When challenged today by MP Cecilia Meireles to state emphatically that there will be no increase in VAT and income tax in 2017, Mário Centeno commented, "I can only say that we will have a reduction of the tax burden in 2017 and that the tax changes that exist have the same pattern as in the 2016 budget."
The socialist party policy at least is clear, it aims for a reduction in of the tax burden and Centeno stated that "this is the most important objective from a macroeconomic point of view. This reduction creates investment opportunities, household income recovery and this is the fundamental trait of the Budget for 2017."
