On the same day that the Portuguese National Institute of Statistics confirmed that the government deficit would stand at 0.4% of GDP in 2022, far from the 1.9% originally forecast, the government announced a series of measures to help the population mitigate the effects of flight Inflation for a year (it was 8.2% this February). The relationship between control of public finances and social spending always maintains a balance that the prime minister, the socialist António Costa, has made the pillar of his budgetary policy and that the left mostly criticizes from the opposition. “Enerve whoever, whatever the cost, we will stay the course,” the prime minister warned in a parliamentary debate on Wednesday, to prevent the lack of control over public accounts leading to a bailout and intervention by international institutions , as experienced between 2011 and 2014. It’s been three years that have left Portuguese society inflamed because of the hardships it has endured, and which still entail numerous measures such as the suspension of salary increases for teachers.
The main innovation announced this Friday in Lisbon is the abolition of VAT on a number of essential products, a measure that has been adopted in Spain since January 1st and which initially did not convince the Portuguese Prime Minister, since this tax cut did not was transferred to prices. For this reason, the government is negotiating with the associations of food production and distribution on the request to achieve a real price reduction when VAT becomes zero. The measure will take shape next week and will apply for six months, Finance Minister Fernando Medina said today.
In recent weeks, the government has stepped up its campaign to control food price hikes with inspections of supermarkets across the country, leading to the launching of nearly a hundred cases of speculative price hikes. According to the Food and Economic Security Authority, some farms have reported profit margins of more than 40% on eggs, oranges, carrots and onions.
Another of the measures announced today is aimed at public sector workers who have recently been leading the mobilizations due to their loss of purchasing power. From April, their salaries will increase by 1% to compensate for inflation divergence from government forecasts. In addition, the subsidy for groceries in this group will be increased to six euros. The improvements will affect around 740,000 public sector workers.
The third measure is aimed at vulnerable families, who receive a monthly allowance of 30 euros, to which is added an additional 15 for each child. The universe of beneficiaries will no longer be limited to welfare recipients and will extend to low-income households. The government expects to support around three million people, around 30% of the Portuguese population. The move comes after European Central Bank President Christine Lagarde recommended last week that governments reduce support for families “quickly” to avoid “inflationary pressures over the medium term”. Portuguese Finance Minister Fernando Medina distanced himself from Lagarde’s vision: “It’s not these families that cause inflation, we can’t pretend to disinflate Portuguese families’ wages, it impoverishes them.”
The cost of the Portuguese government’s package of measures amounts to 2,500 million euros, including the More Housing program (900 million) announced in mid-February to try to mitigate the housing crisis, which is hitting young people and the middle class in particular. The opposition from right and left criticized the measures presented this Friday as soon as they became known. Social Democratic Party (PSD, center-right) parliamentary leader Joaquim Miranda Sarmento felt the proposals were too late and “ignoring” the middle class, while Portuguese Communist Party parliamentary leader Paula Santos criticized them not “Fighting speculation, which benefits many economic groups”.
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