In the six and a half years of the socialist administration of António Costa, the state treasury has already collected more than 100.8 billion euros in IRS between 2016 and June 2023, according to the budget execution summaries published by the Directorate General for Budget. It means that the tax collected during that period represents 40.2% of Portugal’s GDP, which is about 251 billion euros, and that each of the 5.5 million taxpayers with declared income paid more than 18 thousand euros to IRS during that period .
If we analyze the annual evolution of income, it appears that Finance reached a record 15.8 billion euros IRS in 2022, strongly driven by inflation and wage growth. The State collected 6.4 billion euros in the first half of this year, an increase of 14.8% compared to the same amount in 2022, when the proceeds from this tax amounted to 5.6 billion euros.
International institutions such as the Organization for Economic Co-operation and Development (OECD) or the Directorate-General for Taxation and Customs Union of the European Commission (EC) have already warned about the heavy tax burden on income in Portugal. In the latest annual report “Taxing wages“, published in April by the OECD, Portugal appears as the 9th country, from the group of so-called advanced economies, with the highest taxes on work. However, the study adds IRS and social security rebates to assess the situation. This indicator shows that the weight of taxes and contributions on the compensation of a single worker without children earning an average salary increased from 41.8% to 41.9%, an increase of 0.06 percentage points.
The EC concluded in a report released in July that Portugal is one of the 27 countries in the European Union that have increased maximum personal income tax rates the most, in a move contrary to that of most European economies. In 1995, the rate for the highest earners was 40%, a value that remained until 2006 when it increased to 42%. In 2010, it rose to 45.9% and then rose to a maximum of 56.5% in 2013, with full troika power and under the mandate of then Finance Minister Vítor Gaspar. Only in 2018, already under the auspices of the agreement between the PS and the thing, the rate dropped to 53%. And this year it dropped to 48%. The technicians in Brussels believe that a reduction in the maximum rate has a reduced impact on the redistribution of wealth, which is why they are in favor of increasing the levels, ie the progressiveness of the tax.
In fact, the EC’s suggestion comes with a delay, as the executive branch unfolded the third and sixth tiers in 2022, which went from seven to nine, easing the tax burden, mainly on the middle class. This progressivity was maintained this year, but the Treasury Secretary updated tranche income levels at 5.1%, still well below the 2022 verified annual average inflation rate of 7.8%. The IRS Jovem was also extended, with the increase of the tax exemption from 30% to 50% in the first year and with the update of the maximum limits of the benefit that can reach up to 6,005.4 euros. And the minimum annual existence was increased, the amount up to which income is tax-free, from 9870 euros to 10,640 euros, equal to the national minimum wage (SMN), which rose to 760 euros per month. However, this level is no longer indexed to the minimum wage. That is, in 2024, the SMN rises to 810 euros, as expected, and begins to pay the IRS.
The government argued that the tax cut this year cost 782 million euros. For the 2024 state budget, Medina has already pledged to relieve the IRS by $524 million by cutting IRS fees, but that’s not all. The minister admits to strengthening the IRS Jovem and increasing the rent deduction for owner-occupied and permanent housing, which currently has a cap of 2%. According to the Stability Program 2023-2027, the government is committed to reducing the tax burden of the IRS by more than two billion euros in 2027.
Source: DN
