When I was drafting the proposal for the 2024 state budget (OE 2024), which was presented last Tuesday, there was little or no doubt within the government about the choice of one of the two measures.
Between promoting tax relief in terms of IRS to cover the country’s middle class (something that could cover six million families) or returning about a hundred thousand teachers plus the rest of the civil servants with careers defined for six years and six months count Given the seniority they have been demanding for years (a punishment born from the era of austerity and the Troika), the government hardly hesitated: it opted for the most extensive cut of the IRS, explains a financial source involved in implementation of the 2024 OE proposal, heard by Dinheiro Vivo.
According to the same source, he easily won the budget option that aims to improve disposable income, because it covers six million workers or families in Portugal, a group that also includes several tens of thousands of teachers and, in fact, other civil servants.
Remember that Prime Minister António Costa stated at the beginning of this year that “if we wanted to give all other careers the equivalent of the six years, six months and 24 days that teachers demand, it would be at the expense of the country of 1.3 billion euros of permanent expenditure”.
The idea is being defended within the government that this discussion pits the teacher problem (which in any case remains unresolved) against other high-quality measures, because the teaching profession has a lot of power in Portugal.
It is an indirect reference to the power of primary and secondary school teachers’ unions, which are waging a seemingly endless battle with successive guardianships within the Ministry of Education.
It is worth remembering that in 2019 teachers partially obtained some of the claimed replacement of time counting (leading to career level increases and salary increases). Two years and nine months were agreed, with a total amount of 244 million euros.
But in total they demand a complete thaw of nine years, four months and two days. In 2019, the PS government (with Finance overseen by Mário Centeno) relented somewhat, opening up this faction. The rest is missing and apparently will remain that way.
As mentioned, the government has hardly blinked and has continued with a measure that is ultimately much more popular because it (positively) affects the disposable income of six million families.
If, according to Costa, releasing what is missing from the careers of civil servants costs 1.3 billion euros, the Minister of Finance, Fernando Medina, also concluded that reducing the IRS for the ‘middle class’ costs almost the same.
According to the new OE 2024, the “transversal reduction of the IRS”, which includes three axes (updating the limits of the brackets to 3%, which is the expected inflation; reducing the marginal rates up to the 5th income bracket; and strengthening of the minimum subsistence) could generate tax expenditures (minus the IRS to be charged in the 2024 budget year) of the order of 1.327 billion euros, Medina revealed in the OE’s public presentation.
The effort between one measure (IRS) and the other (civil service seniority) is very similar, which is why the debate continues to rage.
As the edges of the new OE proposal were smoothed out, it became increasingly clear to the government that it needed to send a more positive signal to the middle class in this inflation crisis.
Many of the measures in 2022 and 2023 focused more on citizens with below-average incomes and the poorest, and last but not least it is necessary to slow down the pace of private expenditure and the collection of other taxes (those on consumption, such as huge VAT and ISP).
In addition, we are entering the election year, the first round in 2024 (European).
Providing more disposable income to millions of families through the IRS, especially those in the middle class, who are likely to consume more, represents another budget tool. We have already talked about it: indirect taxes, which no one can escape.
Everyone who pays IRS has a job or is retired and makes money doing it. The more direct taxes, the greater the increase in income and the easier the road to a budget surplus.
This is the parallel plan of the government and Finance in all this: after delivering the largest democratic surplus this year in 2023 (plus 2.1 billion euros or 0.8% of GDP – gross domestic product), the new OE this repeat the surplus and yield a positive balance of 664 million euros (0.2% of GDP) and in which the economy slows down to a growth of only 1.5% and almost stagnation of employment (0. 4% in 2024).
Surplus to hoard
It can be said that this year’s surplus of 2.1 billion euros was enough and was enough to respond, even with relief from the tax authorities, to what teachers and so many other thousands of civil servants have been demanding for years.
This was not the government’s intention. According to Medina, one of the main pillars of the new OE is to “protect the future of current and new generations” and here one of the new and strongest ideas that has emerged is to create a fund for “structuring investments”, with successive budget surpluses here that could exist to invest later, after the Recovery and Resilience Plan (PRR) expires in 2026.
This Plan consists of a three-year envelope that could amount to more than 22 billion euros.
Problem: Implementation of the PRR must be done very quickly as it is designed to be implemented through 2026. Without more PRR money on the horizon, Portugal may feel resentful.
The idea of having a fund that continues the momentum of the PRR is gaining a lot of traction.
EU enlargement could disqualify Portugal
And, as explained by a Finance official, there is even a sense of urgency in this project for the new fund for investments after 2026, as this period will be marked by a new enlargement of the European Union to include more countries.
Problem: they will be much poorer and more backward countries, which could exclude Portugal from many European funds because the country no longer meets the minimum criteria for convergence policies.
With the entry of less developed countries, Portugal could become statistically and automatically richer, in relative terms and overnight.
We are talking about candidates like Montenegro, Serbia, Turkey, North Macedonia, Albania, Moldova, Bosnia and Herzegovina, Georgia or even Ukraine.
According to Dinheiro Vivo of Finance, the intention is to invest this year’s surplus of 2.1 billion in “government debt paper” as quickly as possible.
Later, these funds will go to the budget balance (they can generate a deficit), they will be used to make public expenditure (the so-called priority investments) in areas such as the fight against climate change, housing and territorial cohesion, innovation and digital, health and education , he sums up the government.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
