Wednesday 4 May 2011

A very good thing about the package

Lowering payroll taxes and raising VAT in order to effectively do a devaluation of the currency via fiscal instruments (or, more appropriately, levy an implicit import tax).

But perhaps I am biased towards that idea...


  1. not clear about this one... from what I read the idea throughout all the package years is to reduce deductions in personal income and corporate income taxes and simultaneously increase VAT.
    Could not see reduction in payroll taxes anywhere!

  2. Nuno, See point 39 here:

  3. Thanks. Just that I didn't see that measure included in the MoU document...

  4. Just trying to get a sense for how much the average person will feel these austerity measures ...

    To achieve the EUR 410 million increase in VAT revenue, any guess as to what percentage VAT tax increase the average person is likely to see on normal purchases?

    And based on what seems to be the goal of increasing property tax revenue by EUR 400 million by 2013, any guess as to how much property taxes will likely increase for the average homeowner in Portugal?

  5. further on positives. agree with some of the economics in the package but do not see how it will foster growth through improved international competitiveness of portuguese firms in any meaningful way. besides the fiscal devaluation you suggest and which I support, was expecting more thinking out of the Euro box.

    Granted possibly more labour mkt flexibility and some intentions towards lower costs for support services and bureaucracy etc but (i) not sure this will be enough by any means and (ii) nothing really on export promotion.

    defnitely not easy given all the rules (WTO, EU etc) but maybe a crisis would create conditions for thinking more deeply as to whether it is at all possible to achieve growth from where Portugal stands with so few degrees of freedom (trade policy, currency etc).
    such analysis could result in more negotiations being required ...

  6. Sorry to come back to this question but following different versions of this and statements I'm confused.
    What is really the 'official' (ie signed) MoU between Portugal and IMF and EU: (i) version 1 (link posted by Ricardo above) indicates a strong fiscal devaluation already announced with the 2012 budget in Oct 2011, (ii) version 2 does not seem to have the same type of clear statements...
    Anyone can help clarify this?

  7. @Nuno

    Nuno read carefully page 1 of second document.

    by the way here is something on FD:

  8. Francesco, many thanks for both. exactly that is what I find confusing: page 1 says in respect to reviews: "a positive evaluation of progress made with respect to policy criteria in the Memorandum of Economic and Financial Policies (MEFP) and in this Memorandum of Understanding on specific economic policy conditionality (MoU), which [specifies] the detailed criteria that will be assessed for the successive reviews up to the end of the programme...".
    The use of 'specifies' seems therefore to relate only to the MoU and not MEFP regarding conditionality. Is the MEFP really binding ? Just that it seems these issues are creating some confusions on the political debate...

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