Portuguese Government presents State Budget proposal for 2022

13 Oct 2021

The Council of Ministers approved this Saturday, 9 October, the government’s proposal for the State Budget for the next year, 2022. Two days later, at 11:40 p.m. on Monday, Finance Minister João Leão delivered the document to Parliament.

The Prime Minister said that «it is an investment-friendly budget, aimed at the middle classes and focused on young people, maintaining the hallmarks of previous budgets, such as the bet on the NHS, the strengthening of social protection and the increase in the income of workers and pensioners. And the guarantee of sound accounts.»

The Government prepared the State Budget proposal in articulation with the parties to the left of PS, as in recent years. In the final stretch of negotiations before the document was delivered, the PCP, communist party, signalled that it would be intransigent in defending measures such as changes to labour legislation, the increase in pensions and civil service salaries and the regulation of energy costs. For the Left Bloc, the priority is to strengthen investment in the National Health Service through the exclusivity regime for doctors and to end the penalisation of pensions for long careers. The Prime Minister has already stated to be confident on regaining the support of the Left Bloc, after the breakdown in negotiations last year, which led to the party voting against the State Budget Proposal, but so far, no party on the left has yet committed to making the document viable.

The draft State Budget for 2022 was still constructed in the aftermath of a macroeconomic scenario affected by the Covid-19 pandemic. Nevertheless, the Government has revised upwards the main indicators, forecasting that the country will recover the pre-pandemic levels of wealth in 2022. Next year the Government expects the economy to grow by 5.5% (4.8% this year), and the deficit to decrease from 4.3% to 3.2% of GDP, a figure identical to the one included in the Stability Programme. The Government estimates a drop in public debt to 122.8% of GDP and inflation of 0.9%. Unemployment is expected to fall from 6.8% at the end of 2021 to 6.5% in 2022, the lowest figure since 2003.

A new period of negotiation will now follow to try to ensure that the document passes the general vote, scheduled for 27 October. After that, the speciality discussion will be used to hear the ministers and entities and the parliamentary groups will present their additional proposals to the document. The final global vote on the State Budget will take place on 25 November.

General measures

Automatic update of pensions in line with inflation and GDP. Extraordinary increase of the lowest pensions.
Splitting of the IRS tax brackets, with changes in steps above the third bracket and the introduction of two new brackets with rates of 26.5% and 43.5%.
Compulsory inclusion in IRS of short-term capital gains on securities, such as for shares or bonds held for less than one year, for those in the last IRS bracket.
Extension of the term of the Young Persons’ Income Tax (IRS Jovem) from three to five years. Self-employed workers included in the partial tax exemption.
Extension of the Regressar Programme, which allows lower personal income tax for those who have emigrated and wish to return to Portugal until 2023.
The national minimum wage will increase in line with the average increase in recent years (maintaining the target of €750 in 2023).

Measures and incentives for entreprises

Elimination of the Special Payment on Account (PEC) for all companies.
Creation of the Fiscal Incentive to Recovery (IFR), to stimulate private investment in the 1st half of 2022. The maximum ceiling of deduction to IRC collection is €5 million. Companies that exceed the average investment of the last three years can deduct up to 25% of the investment. In return, the Government requires the maintenance of jobs for 3 years and a ban on the distribution of dividends.
The IRC exemption on income from patents rises from 50% to 85% for the exploitation of intellectual property, including the sale of software.
Companies with tax execution proceedings will have access to a repayment plan of up to 60 months.
The IRS in the scope of startups will be revised for cases of remunerations with shares. The Government also intends to review the legal concept of «start-up».
An investment of 34 million euros is foreseen in the promotion of sustainable bioeconomy from biological resources in three strategic sectors for the Portuguese economy: textiles and clothing, footwear and natural resin.
Suspension of the increase in autonomous taxation for SMEs damaged by the pandemic.
The Capitalisation and Resilience Fund (FCR) will have a capital of up to €1.3 billion.
EUR 112 million from the PRR (European Funds Program in Portugal) will be available to support companies under the Mobilising Agendas for Business Innovation.

Key measures in the energy sector

Exemption on special consumer tax for energy production for self-consumption.
Reserve of 68 million to support investment in hydrogen and other renewable gases.
Petroleum products intended for energy production will be taxed with a rate corresponding to 100% of the ISP rate and with a rate corresponding to 100% of the addition on CO2 emissions.
The additional ISP rate of 0.007 euros per litre for petrol and 0.0035 euros per litre for diesel and coloured and marked diesel will remain in force
The extraordinary contribution on businesses (CESE) in the energy sector is maintained.
There will be no change to VAT on electricity.
Environmental taxes will be automatically updated by applying the consumer price index.
EUR 138 million will be applied to the Fare Reduction Support Programme (PART) in public transport.

Key measures in the automobile sector

Increase of 1% in the Vehicle Tax (ISV) and in the Single Circulation Tax (IUC).
There will be changes to the Vehicle Tax Code in terms of the cylinder capacity and environmental component with regard to CO2 emissions.
Support will continue to be given to low emission vehicles.

Key measures in the real estate sector

Income from property will not count for IRS purposes.
Rents of old housing rental contracts will remain frozen.
Merger of the “Porta 65 Jovem” and Accessible Renting programmes.
IMI (municipal property tax) will remain unchanged.

Key measures in professional services

A fee of €2 per subscriber per semester is applied to pay-TV service operators. Doubles the current amount.

Tiago Vidal

Partner and Managing Director LLYC Portugal

Responsible for the operations of LLYC in Portugal, Tiago Vidal leads a team of experts responsible for the development and implementation of Reputation Management strategies, Communications and Public Affairs in leading companies in sectors such as Finance, Real Estate, Energy, Transport and Logistics, Distribution, Automotive, and FMCG. He was previously Head of Corporate Communications at Sonae Sierra, where he led all B2B communication activities in 14 countries. During his 16 years at Sonae Sierra, Tiago was responsible for reputation management, brand, corporate marketing and PR, relationship with stakeholders and crisis communications, including IPO’s, mergers and acquisitions.

Maria Eça

Client Services Director

Maria is responsible for the Public Affairs and Crisis&Risks areas in LLYC in Portugal, working with clients from the banking and insurance sector, health, online gambling and retail. She is advising companies such as Leroy Merlin, Liberty Seguros and Unilever. She has also participated in M&A and foreign investment projects.

With over 8 years’ experience as a journalist, specializing in economics and society, Maria worked at TVI (private television), where she had the chance to follow and report Portugal’s key issues and relevant news about the main companies operating in the country, on a daily basis.