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Portugal government defies consensus with tax plan

Thursday, 20 September 2012   (0 Comments)
Posted by: SAIT Technical
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By Reuters

The Portuguese government defended on Tuesday planned tax hikes that have provoked huge protests and shattered the cross-party political consensus behind an EU/IMF bailout, saying the need to cut the budget deficit leaves it with few alternatives.

The move combines a rise in the social security levy for workers in 2013 with a lower levy for companies.

Carlos Moedas, the state secretary overseeing the 78-billion-euro ($102-billion) bailout programme, described the plan as "a frontal attack on a set of short-term economic weaknesses", saying it is designed to improve corporate liquidity.

"It is said that it will affect consumption, but what is being omitted is that alternative measures on the table would also have that impact, only with a caveat that they would not benefit companies," Moedas told a business conference.

He said the government was "calibrating" the plan so as not to hurt low-income households too much and make it more efficient, but showed no signs of backtracking.

The new bout of austerity, imposed after revenues fell short and a high court disallowed pay cuts for public servants, undermined Portugal's confidence that it can avoid the political instability and social unrest that are blighting fellow bailout recipient Greece.

Unions, employers, opposition politicians and even members of the ruling coalition are demanding a rethink, especially after nationwide protests on Saturday that organisers said drew 500,000 people to the streets to demonstrate anger at the measures from across the political spectrum.

Portuguese benchmark 10-year bond yields jumped on Monday and Tuesday to 8.8 percent from Friday's 8.1. However, they are still around the lowest levels since early April 2011, before Portugal requested the bailout.

The yields had fallen to pre-bailout levels after a rally in August and early September spurred by the European Central Bank's plans to buy bonds of struggling euro zone countries.

Moedas reiterated Portugal planned to return to the primary bond market around September 2013 as the bailout envisages.

"We've proven that we are managing to sell debt with maturities beyond 2013, which means that some in the market already believe in our return," he said, referring to new longer-dated 18-month Treasury bills.

The second issue of 18-month T-bills, along with 6-month bills, will occur on Wednesday when Portugal will offer a total of between 1.5 billion euros and 1.75 billion euros in both maturities.



Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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