Yesterday, the Assembly of the Republic of Portugal approved the draft 2025 state budget of the conservative government of Luís Montenegro, based on significant tax cuts and fiscal incentives. The vote took place thanks to the abstention of the main opposition party, the Portuguese Socialist Party (PS), and the votes in favor of the 78 deputies of the Social Democratic Party (PSD), which is in government, and the Christian Democrats of CDS-PP (2 deputies).
On the other hand, members of the far-right Chega party (50 deputies), the Liberal Initiative (8 seats), the Bloco de Esquerda (5), the Portuguese Communist Party (4), the ecologists of Livre (4) and the animal activists of PAIN (1).
The key to this vote is that, to obtain the abstention of the opposition, the conservative leader and his economic cabinet, led by the Minister of Finance, Joaquim Miranda, and the Minister of Economy, Pedro Reis, had to accept the Socialists’ proposal. pensions up to 1,040 euros 3.9%. Likewise, the new Portuguese public accounts for next year also include a 50 euro increase in the interprofessional minimum wage (SMI), up to 850 euros.
In the case of the increase in the SMI, it is a pact that the Executive of Montenegro has concluded in recent weeks with social agents.
The focus of these budgets is on a significant reduction in taxes for both young people and businesses. The most popular is a 100% IRS bonus (the equivalent of personal income tax, IRFP) for young Portuguese people between 18 and 35 years old during the first year, provided that their annual income does not exceed 28,000 euros.
Then, this premium will be gradually reduced: from the second to the fourth year, it will be reduced to 75%, then it will drop to 50% between the fifth and seventh years and then, in the last three years, the reduction will be reduced. at 25%. The government hopes that up to 400,000 people will benefit.
Another notable point of this Portuguese tax reduction concerns corporate tax. The Executive proposes to reduce the base of this tax from 21% to 20%.
The Tax Foundation economist, a think tank specializing in tax analysis based in Washington, Cristina Enache, explained at the time to elEconomista.es that tax cuts to retain young people in the country “can be a viable fiscal measure in the short term. In the long term, Portugal must reform the income tax, reducing the tax burden on work, for all taxpayers, regardless of their age.
On the other hand, he reiterated that the reduction of companies “is a reform that goes in the right direction”, but he warned that it is not enough to increase the competitiveness of Portuguese companies at the international level. Portugal has a progressive corporate tax with tax rates that, until now, have varied between 21% and 31%.
This latest tax cut sparked huge tensions among Portuguese lawmakers and was achieved thanks to votes for the far-right Chega party and socialist abstention in by-votes.
The key to all these tax bonuses is the budget surplus of 0.4% for this year and 0.3% in 2025. Added to this is the good performance of the economy, which will experience growth of 1.8 % in 2024 and 2.1% during the next financial year. , according to government forecasts.
Extraordinary increase in pensions
Portugal’s budget document also envisages an extraordinary increase in pensions. As recently published by the Portuguese National Institute of Statistics (INE), annual inflation (excluding housing) closed the year at 2.1%. This allows them to consider automatically updating next year’s pensions using a formula that also takes into account GDP growth in recent years.
With this measure proposed by the socialists to abstain and move forward on the document, in addition to increasing by 2.6% according to the calculation of this standard, pensions up to 1,040 euros will increase by 3.9% per year next.
It will also be included an extraordinary increase in pensions of 1.25% promoted by the socialists, thanks to the votes in favor of the left and the abstention of the far right Chega, and despite the rejection of the parties that make up the conservative government.
Alexandra Leitão, parliamentary spokesperson for the Socialist Party, reiterated in her speech before the Chamber that “it is a bad budget” and her abstention is due to the fact that there are doubts “between incompetence and certainty opacity. Leitão reiterated that “they completely ignore the real needs of the Portuguese”, but that their abstention is due to the fact that the Socialist Party prioritizes “stability” and that its vote is expressed “with a sense of state and responsibilities.
