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Portugal’s New Government Plans to Reintroduce Tax Breaks
Portugal’s new centre-right government has announced plans to reintroduce tax breaks that were previously scrapped by the previous Socialist government. The tax breaks were introduced in 2009 to help Portugal recover from the financial crisis, but were criticized for driving up house prices and attracting wealthy expatriate pensioners.
New Rules Excluding Pensions and Capital Gains
The new government plans to reintroduce a 20% flat rate of income tax, but with some changes. According to Finance Minister Joaquim Miranda Sarmento, the new regime will exclude pensions and capital gains, which was a major concern for other European countries. The tax breaks will only cover "salaries and professional income".
Attracting Young Professionals
The government hopes that the tax breaks will attract highly skilled foreign workers, particularly young professionals, to boost growth and stimulate the economy. Portugal’s top marginal tax rate of 48% is considered high compared to other European countries, making it difficult to attract overseas engineers, researchers, and managers.
Not a Solution to Housing Crisis
The government has emphasized that the tax breaks will not solve the country’s housing crisis, which is driving young people away from the country. The government is working on a separate plan to tackle the housing crisis, which includes increasing the supply of affordable housing and reducing the cost of living.
Challenges Ahead
The government’s plans face several challenges, including opposition from other parties and concerns from the central bank. The central bank has warned that the government’s plans could drive Portugal from a fiscal surplus back into a budget deficit, potentially putting it in breach of the EU’s new debt rules.
FAQs
Q: What are the tax breaks being reintroduced?
A: The government is reintroducing a 20% flat rate of income tax, but excluding pensions and capital gains.
Q: Who will benefit from the tax breaks?
A: The tax breaks will benefit highly skilled foreign workers, particularly young professionals, who will be attracted to Portugal to work and contribute to the economy.
Q: Will the tax breaks solve the housing crisis?
A: No, the government has emphasized that the tax breaks will not solve the housing crisis, which is a separate issue that requires a different solution.
Q: What are the concerns from the central bank?
A: The central bank is concerned that the government’s plans could drive Portugal from a fiscal surplus back into a budget deficit, potentially putting it in breach of the EU’s new debt rules.
Conclusion
Portugal’s new government is taking steps to stimulate the economy and attract foreign investment, but the plan faces several challenges. The reintroduction of tax breaks is a complex issue that requires careful consideration of the potential consequences. While the government hopes to attract highly skilled foreign workers, it must also address the country’s housing crisis and ensure that its plans do not put the country in breach of EU debt rules.
Author: www.ft.com
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