The country’s total tax burden, measured as a percentage of gross domestic product (GDP), will increase in 2024 ‘exclusively’ through indirect taxes, which are generally considered the most unfair, such as VAT and other taxes on consumption. IUC) and the IRS relief measure should have a greater impact (as a percentage of the tax benefit) on higher-income taxpayers. The poorest will also experience some relief, but the reduction on the bill that must be paid to the tax authorities is much smaller.
These are two conclusions from a study released yesterday by the Public Finance Council (CFP), as part of the analysis of the 2024 state budget proposal, which is being debated today in Parliament, with Minister Fernando Medina sending to the Commission of Finance. Budget and Finance.
According to the new analysis of the entity chaired by Nazaré Costa Cabral, the amendment proposed by the government aims to modify the limits of the brackets and reduce the IRS rates proposed for 2024 in order to give back to the taxpayers who benefit from this need most, but especially the ‘class average’, part of the ‘good performance’ of the government accounts, the government has argued in different voices.
And this is precisely why this IRS relief program benefits the highest levels, those who can most be classified as middle class. That’s apparently the goal. In addition, for the very poorest, the government has made plans to strengthen various social support measures, a way to focus efforts on the expenditure side, as requested by the European Commission, ECB, OECD, etc.
As mentioned, according to the CFP simulation, it is true that all income groups (deciles) will benefit from the IRS exemption, but “in relative terms, the largest beneficiaries of this measure will be the deciles between the fifth and ninth (approximately minus 7, 5% of estimated revenues), with a maximum benefit achieved in the eighth decile (-8% of estimated revenues)”.
The higher the ‘decile’, the higher the income earned, but as you move up this income scale, the higher the tax rate not charged compared to the current situation with the IRS.
The difference mainly comes from less withholding tax (during 2024) and then a lower final tax (in 2025, when the 2024 IRS tax year closes).
“The last decile will yield a more modest benefit (-4.5% of estimated revenues),” the CFP adds.
To give you an idea: according to Eurostat’s standardized values, the fifth decile corresponds to people earning an average monetary income of 1470 euros per month (a year has 12 months). Here the benefit in the IRS scheme is 7%, but in the lowest decile (the fourth) the discount is only 5.8%. And it is decreasing.
If, on the other hand, we go up the scale, we reach the eighth step, where the average net monthly income can be around 2150 euros and where the tax exemption can reach 8% according to the Council’s accounts.
In the next step (ninth), the average income could be around 2,715 euros and yet the IRS reduction due to less withholding at source and final settlement could amount to a significant 7.5%, according to the CFP.
More indirect tax burden
The entity that evaluates fiscal policy also notes that the tax burden in the broadest sense of the word (taxes plus effective social contributions) will increase in 2024, but it is not because of the employment effect that increases the value of rebate revenues. It is precisely because indirect taxes (especially VAT and other consumption taxes) will grow faster than the economy (thereby increasing this indirect tax burden).
According to the Council, “the increase in the tax burden from 35.3% to 35.5% of GDP will [entre 2023 e 2024]is driven exclusively by the growth in the weight of indirect taxes (+0.6 percentage points or pp of GDP), which will more than offset the forecast decline in the weight of direct taxes (-0.4 pp of GDP) , due to the IRS cut expected for next year.”
In fact, employment dynamics are already low in 2024 (Finance expects job creation of only 0.4% next year, the Bank of Portugal even less, around 0.2%). The weight of social premiums will therefore remain the same, at 10.4% of GDP.
Indirect tax burdens are developing well and should reach 15% of GDP, driven by the strength of VAT, which, according to the OE analysis, will lead to a collection of 9.3% of GDP.
The Technical Budget Support Unit (UTAO) also released yesterday the preliminary assessment of the OE 2024 proposal, concluding that “the decline in revenues due to the adoption of new IRS measures is partially offset by measures that indirectly increase tax revenues.”
Offset one-third of the IRS exemption with more taxes
Here, the entity providing support to Parliament, coordinated by Rui Baleiras, states that “the expected impact on the decline in turnover of 1,582 million euros (-0.57% of GDP) results from the adoption of new permanent measures affecting the IRS and goal to provide more income to families and youth burdened by this tax.”
“It should be noted, however, that this impact is partially offset by the expected increase in revenue collection of 425 million euros through measures affecting indirect taxes,” UTAO said.
In other words, one-third of the new benefits from the IRS could be offset by greater indirect tax dynamism and collection.
“In these measures, the revenue increases come from the tobacco tax (177 million euros), the update of the rates on various taxes (112 million), the phased update of the IUC – Single Circulation Tax (98 million) and the increase in the IABA – Tax on alcoholic drinks and drinks with added sugar (39 million euros),” says the Chamber Unit.
The starting point in 2024 is better than previously thought
Finance Minister Fernando Medina’s starting point for the 2024 state budget is even “more favorable” than predicted about a month ago, the Public Finance Council also said.
The entity Nazaré Costa Cabral has revised its surplus estimate for this year by a tenth compared to a study it published on September 21: it now says that the PS government is very capable of ending this year with a public budget surplus of 1% of gross domestic product. Product (GDP), the highest value ever in a democracy.
The surplus for next year remains, but the CFP has adjusted the value downwards from 0.8% of GDP in September to 0.1% now. This revision brings the new projection more in line with the 0.2% that Medina predicted in the 2024 budget proposal.
Something similar happens with the debt ratio. A month ago, the CFP estimated that the weight of public debt would fall from 112.4% of GDP in 2022 to 104.7% at the end of this year, but after all it believes that the ratio could fall even further, it estimates 102.6%, a value slightly below the 103% calculated by the Ministry of Finance.
The Finance Council believes that it is possible to further reduce the debt ratio to 98.7% by 2024 (in line with Medina’s 98.9%). This value is also lower than the 100.3% calculated at the end of September by the entity that evaluates Portuguese fiscal policy.
The CFP also believes that “the forecast of budget surpluses in two consecutive years” by the government (0.8% this year and 0.2% next year) “seems to be an eccentricity in the country’s economic history and raises unprecedented questions about the direction to be given. for fiscal policy”.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
