Government and PS inch closer to a deal on State Budget
Government edges closer to the Socialists' position on the both the tax breaks for the young and the corporate income tax.
What?
Last night, a deal on the 2025 State Budget seemed within reach after PM Luís Montenegro and Socialist (PS) leader Pedro Nuno Santos met for a round of negotiations at São Bento Palace.
After the meeting, the PM spoke to the country (at prime time, 20pm) to announce that the Government is now willing to work on the basis of the previous Socialist executive model’s for the Youth Personal Income Tax (IRS Jovem) and to limit the reduction in corporate income tax - the two red lines set by the Socialist leader at the beginning of negotations.
Click on the document below to read the new proposal (in Portuguese).
The details?
The AD’s programme foresaw a gradual reduction in corporate income tax by the end of its mandate from 21% to 15%, at a rate of two percentage points per year.
In this new proposal, the Government has agreed to ‘significantly cut’ the reduction in corporate income tax, proposing a gradual reduction from 21% to 17% over three years.
Regarding tax breaks for the young, the AD’s Programme foresaw that taxes paid by under-35s would be reduced to a third, with a maximum rate of 15%.
With the PS proposal, which the Government has now agreed to adopt, the scheme is extended to all young people - without being dependent on schooling, as is currently the case - up to the age of 35 and increases the exemption period from five to 13 years.
This counter-proposal concentrates the benefit on young people with lower incomes - up to the 6th bracket (instead of up to the 8th).
The budgetary impact is 645 million euros, higher than the current regime but smaller than the government's original proposal.
Background?
Last Friday, Montenegro and Nuno Santos met for the first time to negotiate the 2025 budget. The meeting ended with seemingly far-apart positions without a break in the negotiation process.
After the meeting, the PS general secretary declared that he would reject a budget with the government's proposed changes to the IRS Jovem and corporate tax or any model of these measures.
As an alternative, Nuno Santos said that the budget margin earmarked for IRS Jovem should be used for public investment in middle-class housing, an extraordinary increase in pensions and an exclusive regime for doctors in the health service.
Shortly afterwards, Montenegro labelled Nuno Santos' proposal “radical and inflexible” but promised that this week he would present a counter-proposal to the Socialists in an “attempt to bring positions closer together”.
The accusations continued between both parties throughout the week and reached a high point during the PM’s questions on Parliament on Thursday.