‘Portugal risks spooking investors with new 2017 property tax,’ runs a Bloomberg headline in an article which concluded with a comment from Vilamoura World’s Paul Taylor, “Quite frankly, it’s scary.”
The property developer, who is seeking partners at the huge Vilamoura expansion and requires €1 billion in investment to bring the project to a conclusion, shared his concern about the possible impact of the new tax at a recent real estate conference near Lisbon.
Portugal’s Prime Minister, António Costa, intends to raise indirect taxes to fund his socialist party’s stated policy of raising the incomes of the lower paid to give people more money in their pockets to spend.
Property is still seen as the preserve of the rich and tax rises in rental income and simply for owning assets over a provisional threshold of €600,000 form part of the 2107 State Budget proposals that are starting to work their way through the legislative process, to be finalised on November 29th.
“Returning money to public workers by increasing property taxes is one of those measures that will immediately scare away investors,” said Peter Villax, head of the Portuguese Family Business Association in Lisbon. “We need measures that stimulate growth, not half-baked policies that will bring in votes at the expense of much-needed investor confidence in Portugal.”
Costa’s desire to switch from direct to indirect taxes may or may not balance the books but the effect on an already struggling middle class will be painful and the off-putting socialist taste presented to investors is likely to make many think twice before committing significant funds in Portugal.
“We have to have greater justice in the distribution of the tax burden,” Costa said on Sept. 22nd, “There are other sources of income, there are other forms of taxation that have to have greater weight so that we may have lower taxation on income from work.”
The new €600,000+ real estate tax of an additional 0.3% of the patrimonial value may have an impact on Chinese and other non-European investors who have been buying Golden Visa property, according to lawyer Tiago Caiado Guerreiro, at Caiado Guerreiro & Associados. The program has attracted almost €2.4 billion in investment since it began in 2012 but continues to provoke complaints for its poor administration with many Chinese complaining that they feel 'duped by the Portuguese government'.
The details of the 2017 draft budget will be analysed over the coming weekend but the stated socialist policy for the redistribution of pain will hold true, however the details pan out.
