“Portugal still has room to increase the tax burden and must use it to strengthen fiscal consolidation in the medium term.”
This is one of the findings of the ‘Fiscal Reforms for EU Member States in 2015,’ released yesterday with Brussels believing that it is possible for Portugal to raise taxes on consumption, property and the environmental as a way of easing income tax.
The European Commission recognises that Portugal is among those EC countries with relatively high tax rates on income, although in the case of households there recently has been some easing due relief centred on those with families.
The Commission does not want income tax to drop without a fall in government spending or, more likely, a rise in indirect taxes such as those on property and spending, it sees these as 'less distorting' and less harmful to employment growth.
VAT and excise duties, property tax such as rates, and environmental taxes are among those that 'should be raised.'
Portugal already has the so called ‘green tax’ which aims to raise €150 million which partly will offset drops in income tax.
The report dwells also on the taxation of property, noting that Portugal together with Italy, Spain and Germany, have higher rates of tax on buying and selling houses (including IMT, stamp duty and capital gains tax) than on rates.
The report suggests easing off on the former and raising the latter.
In 2012 Portugal’s property owners saw tax rises on 4.9 million buildings when rateable values were brought up to date.
The government aims also to drop property transfer tax, (IMT) and replace it with stamp duty with a goal of halving revenue on property sales over time.
With regard to VAT, the EC report says that reducing this tax is not the best way to increase household disposable incomes, in fact it suggests that changes may have a regressive effect.
The European Commission's suggestions have been published just before the general election in Portugal with the socialists aiming for a drop in VAT for restaurants and cafés back to 13% and an easing of Social Security contributions.
The ruling coalition wants to reduce the income tax surcharge and increase the family tax allowance.
Beyond these tax pledges the parties have spent most of the time slagging each other off whcih avoids having to outline policies in too much inconvenient detail.
This less than helpful EC report is a way of encouraging those governments that owe the Troika money to ensure the public is squeezed hard enough to pay the bill.
