Portugal's government has agreed a deal to raise the national minimum wage for an estimated 500,000 workers to €505 a month as from October.
The action results from an agreement between the government, unions and associations of various sectors to lift the rate from just €484 a month.
Since the beginning of the year the government has shown an openness to negotiating an agreement for raising the minimum wage but negotiations still were complex.
One of the concessions to ease the burden on employers is that businesses are to pay less social security for workers on the minimum wage.
The €485 rate has not moved since the Troika arrived in Portugal to oversee its investment and help organise and agree fiscal changes.
The discussions about increasing the minimum wage began in 2011 when the country was at a low point in its personal hell with the economic crisis seeing thousands of business collapse, government spending continue unabated and unemployment at record levels. The government was raising taxes and attempting to reducing its spending in order to fulfill the agreement with the EU, IMF and European Central Bank - not a good time to ask for a rise.
To a more positive 2014 where the Government has managed successful negotiations with the Business Confederation of Portugal, the Farmers Confederation of Portugal, the Portuguese Tourism Confederation, the Confederation of Trade and Services of Portugal and the main workers’ union UGT and a new minimum wage deal was signed off by Mota Soares who was instrumental in reaching the agreement.
The Confederation of Trade and Services of Portugal was the most resistant to an increase in the minimum wage this year but the final formula will please most, it at least reduces a good degree of pain for employers.
The government can afford any adverse impact on its own finances by the minimum wage rise as it currently is flush with taxpayers’ money.
The lack of real effort in tackling public finances by reducing government spending continues to be disguised by a huge rise in tax income on all fronts from the public, with the notable exception of stamp duty from house sales.
Between January and August this year, the Portuguese state relived its population of €8.24 billion in income tax , an equal amount as in each of the years 2001 to 2006.
Despite a leap in tax revenues the overall deficit has fallen by just €769 million as the government continues spending the nation’s tax income and fails to implement many of the cuts agreed with the Troika.
Portugal reached the end of August with a €4.686 billion deficit due to a 3.3% increase in government spending that the government says is due to the reversal of salary reductions implemented in 2014.
On the plus side for businesses the continuous increase in the income tax receipts has been used to subsidise businesses as the contribution from corporation tax continues to fall.
