The Portuguese fiscal cliff [penhasco fiscal?]

by on December 31, 2012 at 1:50 am in Uncategorized | Permalink

Lisbon plans to lift income tax revenue by more than 30 per cent[this coming year], raising the effective average rate by more than a third from 9.8 to 13.2 per cent. Anyone receiving more than the minimum wage of €485 a month, including pensioners, will also pay an extraordinary tax of 3.5 per cent on their income.

We’ll see how that goes, here is the rest of the FT storyHere are some related earlier posts.

Rich Berger December 31, 2012 at 7:15 am

Not Fiscal Cliff but Fiscal Consequences.

genauer December 31, 2012 at 8:45 am

marginal tax rate in Germany in the mid 1990ties was 53% * (1 + 7.5% solidarity surcharge + 9% tithe) = 62%.

Thats what you do when the fatherland needs the money, to pay for reunification or to avoid bankruptcy

genauer December 31, 2012 at 8:54 am

starting at 68 k$ /yr

vrodrigues December 31, 2012 at 12:32 pm

Dear genauer
The FT piece may have left you with the wrong impression about the kind of taxes we pay in Portugal. For next year, the marginal tax rates for anyone earning more than 80,000€/year is 48%+2.5%(“solidarity surcharge”)+3.5%(“extraordinary surcharge”)+11%(social security contribution)=65%. Before that, your employer pays 23.75% on your wage for social security. Thus, out of each 123.75€ that your employer pays on your behalf, you get 35€. Fortunately, we don’t have a reunification to pay for!
Regards

Peter Schaeffer December 31, 2012 at 1:17 pm

From the FT article

“The coalition will be relying on increased state revenue to account for about 80 per cent of the fiscal adjustment required in 2013 — a reversal of the original bailout plan, in which consolidation was to be achieved mainly through spending cuts.”

In general, extreme supply-side economics is absurd. However, Portugal may have actually made it to the right side of the Laffer curve. Of course, cutting taxes won’t produce the revenues the Portuguese government needs either. There probably isn’t any point on the Laffer curve that will “work” in the current environment. Either Portugal will become a permanent “transfer union” recipient or it will collapse.

genauer December 31, 2012 at 1:41 pm

your summary does in deed sound different to the FT article.

But how come then the 9.8 -> 13% average tax rate ? this is low.

And when I look for more details in http://www.pwc.pl/en_PL/pl/biuro-prasowe/PIT_en.pdf
I wonder what has changed when. Where does all the money go, if real taxes are as high as your picture. We had our 25% eastern Germany, with the majority of jobs vanishing, problem.

Your 72% total tax rate is clearly on the wrong side of the Laffer curve, I argue usually that the german experience is that our 62% was already too much.

Brian Donohue January 1, 2013 at 2:13 pm

Just a theory, but if vrodirguez’ numbers are in the right ballpark, it fairly screams ‘black market’.

ad*m December 31, 2012 at 12:32 pm

And Germany cut expenses and transfer payments. I am fine paying higher taxes temporarily to do something about this disaster, but not permanently to cover higher expenses.

Rahul December 31, 2012 at 9:00 am

Is that photo real or software rendered?

Peter Schaeffer December 31, 2012 at 12:12 pm

Real from Trolltunga, Norway. See http://9wows.com/tag/ledge/

Tom December 31, 2012 at 12:13 pm

Rather than raise tax rates, the gov’t should print bearer-bonds (1 year, 0% interest), and pay gov’t obligations with them, accepting them as tax payments.

genauer, slowing down December 31, 2012 at 2:18 pm

Tom,

debt is debt, no matter how you call it. Different names only matter, when you plan to not pay certain parts of it. Portuguese 2-year rates are now down to 3.6%, but in the moment you start any monetary shenanigans, all hell would break lose.

Portugal is in this situation, because people do not believe, that it will pay all its debt.

Arthur January 7, 2013 at 2:32 pm

In Brazillian Portuguese we are using “abismo fiscal”

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