Bloomberg News

Portugal Plans One-Time Tax Surcharge on Christmas Payments

June 30, 2011

(Adds in second paragraph that all income subject to income tax will be affected by tax.)

June 30 (Bloomberg) -- Portugal is preparing a one-time income-tax surcharge to help it reach this year’s budget-deficit target, Prime Minister Pedro Passos Coelho said.

The tax will apply to all income subject to personal income taxes and the revenue raised will be equivalent to 50 percent of the Christmas supplements all workers receive, excluding the amount below the national minimum wage, Passos Coelho said in his first speech to parliament since his election this month. The Christmas payment is equal to a month’s salary.

Portugal’s new government is committed to an austerity plan that was a condition of a 78 billion-euro ($113 billion) financial aid package from the European Union and the International Monetary Fund. With the country’s debt and borrowing costs surging, Portugal followed Greece and Ireland in April in seeking a bailout.

“The state of the public accounts forces me to ask the Portuguese for more sacrifices,” Passos Coelho said today at the parliament in Lisbon. “We have objectives to fulfill that leave us with no feasible alternatives.”

The austerity plan aims to reduce the deficit to the EU ceiling of 3 percent of gross domestic product by 2013 from 5.9 percent in 2011 and last year’s 9.1 percent.

The government needs additional measures worth about 2 billion euros to meet this year’s target, Passos Coelho said. The tax surcharge will raise about 800 million euros toward that goal, he said. Last year’s deficit was 15.8 billion euros, the National Statistics Institute said yesterday. The Finance Ministry will issue a detailed proposal for the one-time tax within two weeks, Passos Coelho said.

Shrinking Economy

“All measures aimed at increasing government revenue are positive, but this extraordinary measure is not enough to calm markets,” said Filipe Silva, who manages 60 million euros of debt securities including Portuguese government bonds at Banco Carregosa SA in Oporto, northern Portugal. “What markets need to know are what concrete measures will be taken about Greece.”

The economy is set to shrink this year and unemployment is 12.4 percent, even before the government pushes through demands from the EU and the IMF. “Without budget consolidation, we won’t have growth,” Passos Coelho said.

The government aims to bring forward to the third quarter some of the measures included in the bailout program, including a restructuring of state-owned companies and the state-asset sales, the prime minister said.

Passos Coelho said the government will seek to sell its holdings in electricity company EDP-Energias de Portugal SA and power-grid operator REN-Redes Energeticas Nacionais SA in the third quarter. The government said in its program, issued on June 28, that it would seek to sell the stakes by year-end.

--With assistance from Henrique Almeida in Lisbon. Editors: Jim Silver, Jennifer Freedman.

To contact the reporter on this story: Anabela Reis in Lisbon at areis1@bloomberg.net.

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net


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