Portugal will raise capital gains tax and increase levies on corporate profit and high earners to reach the deficit-reduction goals in its 78 billion-euro ($112 billion) bailout as it braces for two years of economic contraction.
The government will impose a tax surcharge of 3 percent on companies with income above 1.5 million euros, add a bonus tax of 2.5 percent on the highest earners and raise the levy on capital gains by 1 percentage point to 21 percent, Finance Minister Vitor Gaspar said today in Lisbon as he presented the government’s four-year budget plan.
The moves will help trim the budget deficit from 5.9 percent of gross domestic product this year to the European Union ceiling of 3 percent in 2013, he said. The shortfall will narrow to 0.5 percent in 2015. The government will reduce its deficit even as the economy contracts 2.2 percent this year and 1.8 percent next year, before expanding 1.2 percent in 2013, he said.
With debt and borrowing costs surging, Portugal followed Greece and Ireland in seeking an international bailout. The aid package calls for spending reductions for 2012 and 2013 amounting to 3.5 percent of GDP. Under the terms of the bailout, Portugal agreed to present by today a four-year budget plan, including economic and deficit forecasts and estimated spending costs.
A team of European Union and International Monetary Fund inspectors on said Aug. 12 Portugal was “on track” to meet this year’s deficit goal.
The new budget plan predicts a debt of 100.8 percent of GDP this year, rising to a peak of 106.8 percent in 2013, before starting to decline.
Portugal’s economy emerged from a recession in the second quarter as the austerity measures the government implemented in return for the rescue didn’t have as deep an impact on growth as economists had forecast. GDP was unchanged in the second quarter from the first, when it fell 0.6 percent. GDP dropped 0.9 percent from a year earlier.
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