For Portugal, the question has not been so much whether austerity measures are coming, but when. With an eye watering deficit of 9.4% in 2009, Portugal’s debt laden economy has no doubt given the Portuguese government many sleepless nights as it has promised to reduce that to 7.3% for 2010. The government have predicted that it will take until 2013 to reduce the deficit further to the European target of 3% or under – which still seems very soon.
Now that Portugal’s fellow European member states have agreed a financial rescue package, there is added pressure for the country to tighten its belt. Accordingly, this week Portugal has bitten the bullet and announced some significant tax measures that it hopes will move reduce the deficit.
Firstly, the government proposes to introduce a capital gains tax of 20% on stock market gains. However, this will only yield a decent sum for the country’s coffers if anyone actually makes any money on shares – a fact which has caused the Portuguese government to admit that their prediction of an extra 200 million euros a year from this measure is unlikely in the short term.
What does this mean for the overseas investor? Nothing, apparently. Non-residents are going to be excluded from this tax. Smaller investors are also exempt, so anyone with 500 euros or less to invest in Portuguese shares will not have to pay.
The second tax measure that is bound to raise eyebrows is the creation of a new tax band, applicable to those earning more than 150,000 euros. These high earners are tipped to pay 45% on their earnings from 2011. The introduction of this rate is expected to make the Portuguese government an extra 30million euros next year.
Proposed austerity measures are not just about tax rises. Spending cuts are also imminent. Notwithstanding the government’s commitment to invest in a new airport for Lisbon, this has been shelved for the time being to save money.
Finance Minister Fernando Teixeira dos Santos has said that the worst is not over. If more tax rises are necessary, he claims that the government will have to resort to such measures to reduce the deficit.