The proposal for the state budget for 2023, approved yesterday by the Council of Ministers but subject to adjustments until delivery scheduled for next Monday the 10th, should register an increase in income tax brackets with a value between 3.53% and 4.43% , in line with the update of pensions, to ensure the fiscal neutrality of income accrual, says Dinheiro Vivo. If that materializes, however, growth will be well below this year’s inflation forecast of 7.7%, according to the Public Finance Council, or 7.4% according to government estimates.
In the draft Medium-Term Agreement to Improve Income and Competitiveness, delivered to the social partners last week, the cabinet already indicated that “it is crucial to ensure that wage increases are not diluted by the tax burden nor translate into effective disposable income losses” , so it will be necessary to “update the IRS scales regularly to ensure tax neutrality”. In that sense, the budget proposal should include an increase in the ceilings of the current nine levels of tax revenue to accommodate the salary increases and limit the resulting increase in the IRS payable. The aim of the executive is that in the private sector, the nominal pay of employees translates into an average annual increase of 4.8%, between 2023 and 2026. The minimum wage should increase from 705 to 759 euros, an increase of 7. 7%, in line with inflation, but this file is not yet closed.
In the civil service, increases should fluctuate between about 10 and 2%, with the minimum wage in the state expected to rise 8% from the current €705 to €761.58. This Friday, unions and the cabinet will meet again to try to reach a salary adjustment agreement for 2023.
The executive branch’s option regarding changes in the levels of the IRS should undergo an update identical to that of pensions, between 3.53% and 4.43%. According to Dinheiro Vivo’s calculations based on an increase of 4%, the first bracket, taxed at 14.5%, could be increased from EUR 7116 taxable income to EUR 7400; the second tier, with a rate of 23% from 7,400 euros to 10,736 euros, can grow to a ceiling of 15,824 euros. This makes it possible to somehow meet salary increases, thus avoiding loss of income.
Deloitte warns against injustice
However, the IRS specialist at the consulting firm Deloitte, Ricardo Reis, warned that “an identical 4% increase across all levels favors those with higher incomes,” he told Dinheiro Vivo. According to forecasts for a cross-sectional update of 4% of the levels presented by the consultancy to journalists at a meeting last week, an annual net salary of 9,189 euros, equivalent to 800 euros gross per month, could grow by 4.31% to 9585 euros per year. A net annual salary of 40,692 euros, referring to a gross monthly salary of 5,000 euros, benefits from an increase of 4.82% to 42,652 euros. According to Ricardo Reis, “the fairest thing would be to increase the lower levels more so that the update is also progressive”. But Dinheiro Vivo knows that this will not be the way forward for the government that prefers a cross-cutting update.
Another of the measures to be included in the budget proposal is the increase in the annual payment from the IRS Jovem, which currently allows partial tax exemptions of up to 30% for early-career workers for five years: it is aimed at surviving relatives and green vouchers, between the ages of 18 and 26, and at doctorates up to the age of 30.
Selective IRC Reductions
On the IRC side, the executive has already ruled out a general tax cut from 21% to 19%, advocating selective cuts instead, especially for those who raise salaries, hire and invest in research and development. In this regard, the consultancy FI Group has indicated to Dinheiro Vivo some steps forward, such as the increase from 32.5% to 40% in the deduction of R&D expenditure, in the context of “strengthening the conditions of the Tax Incentive System for Research and Business Development (SIFIDE)” advocated in the government’s Competitiveness and Income Agreement proposal.
Source: DN
