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Portuguese report
by Euro Reporter
2015-05-30 11:04:00
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Portugal's opposition Socialists vow to wind back austerity

Portugal's opposition leader Antonio Costa has ended months of near silence on his party's policies, with proposals that seek to present his Socialist party (PS) as an alternative to the austerity of the right-of-centre governing coalition, ahead of this autumn's general election. Only two days beforehand, Mr Costa, who was elected last September in an unprecedented open primary, said the PS would ignore recommendations made by the International Monetary Fund in reviewing Portugal's post-bailout progress. His comments prompted fears outside Portugal that the PS was edging towards the radicalism of Greece's ruling Syriza party - potentially endangering Portugal's Eurozone status. The Portuguese have faced years of cuts in wages and pensions.  The impact of recession has been immense, and does not show in headline economic statistics. In Portugal, the great majority of those registered as unemployed receive no jobless benefits at all, and hundreds of thousands - many of them young and well qualified - have gone abroad to seek work since the crisis broke. The Socialists' programme was approved on Thursday after several hours of heated debate and key elements remain to be decided. Mr Costa cited several pledges with major spending implications, including an increase in the school leaving age and 100 new health centres with GPs.

portugal_400But he also said the party would respect Portugal's international obligations. The draft manifesto made no mention of an earlier, controversial recommendation by a group of economists for a cut in social security contributions to encourage hiring.  Some fear it could sap the system's finances and Mr Costa has insisted it will be in the final manifesto, to be put to a national convention on 6 June. Debate is also still raging on a uniform employment contract. Its aim is to stop short-term contracts gaining ground over permanent ones, but it could also end up eroding workers' rights. Portugal's conservative President Anibal Cavaco Silva has tried to push the Socialists and the ruling coalition to agree to co-operate to ensure the sustainability of public finances.  But Prime Minister Pedro Passos Coelho said last week such a consensus was unimaginable. The Socialists have led in the polls for most of the time since Mr Costa took on the leadership of the party, but the gap has now narrowed. And there is a new party that has genuine links with Greece's Syriza party, as well as Spain's anti-austerity party Podemos, which is presenting a challenge to the mainstream parties.

Rui Tavares, the leader of Livre, is pushing for Portugal's debt to be restructured. Livre is unlikely to win more than a seat or two, but with the election on a knife-edge, it could have some clout. So far there is little sign of investors being spooked by the possibility of a Socialist government.  And while austerity continues to bite and unemployment is still rising, the finances are looking better. Portugal this week, for the first time in its history, sold debt at a negative yield - auctioning €300m euros (£210m) of six-month bills at minus 0.002%.


Tax planning and Portugal’s non habitual residence scheme

Portugal can be a very attractive country to live in from a tax point of view. The inheritance tax regime is very benign here, and there is no wealth tax. Tax efficient arrangements can lower tax liabilities on your investment and pension income. And if you are a new resident, Portugal’s Non-Habitual Resident (NHR) regime provides beneficial tax treatment for the first 10 years of residence. To qualify as a non-habitual resident you must not have been tax resident in Portugal for any of the previous five years, and must meet the criteria to be tax resident in the year of application and every year for the 10 year period. If you are approved for the scheme, employment income earned in Portugal and derived from a “high value added” activity, is taxed at 20%. This compares very well to the top rate of income tax which is 48%.

The regime also provides for tax exemptions for foreign source income, provided certain conditions are met. Employment income from a foreign source may be exempt from tax in Portugal if it is taxed in the state of source under the rules of a double tax treaty, or, if no tax treaty exists, under domestic legislation and is not regarded as arising from a Portuguese source. Foreign pension income, for example from UK pension funds, is exempt from Portuguese tax provided it is taxed in another country under the terms of the tax treaty, or is not regarded as Portuguese source income under domestic legislation. In practice, it may be excluded from taxation in both Portugal and the source country. With the new UK pensions freedom, this can provide advantageous opportunities.

In general, other types of income earned outside Portugal, such as investment income are exempt from tax here provided it may be taxed in the state of source under a tax treaty, or it may be taxed under the terms of the OECD Model Tax Convention and is not regarded as arising in Portugal. This does not apply to income generated in a blacklisted tax haven (including Isle of Man, Channel Islands and Gibraltar). While the NHR scheme can offer significant tax benefits, it is complex and has pros and cons. It is important to take professional personalised advice to establish what would be most advantageous for you. There are tax advantages to living in Portugal even if you do not use the NHR regime. The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.


Portugal’s elderly barely surviving with charity and cold showers

Maria earns a pension of €520 (US$568) per month, and lives with her 48-year old son, who suffers from schizophrenia. “It’s difficult. We lack everything in general, and have to cut wherever possible. I’ve cut down on “bicas” (coffees) and have started buying less bread.” She attends a parish social centre in Lisbon, where she enjoys warm meals for lunch. “If I didn’t come here, I probably wouldn’t have food every day,” she says. Sat around a table at the centre, groups of around 30 elderly people draw colourful pictures, one of their daily activities – which keeps them occupied and distracts them, albeit temporarily, from a precarious reality. "Elderly people have greater needs of support, hygiene and food. The funds we get have decreased over the years, so we have had to increasingly cut down on basic things, like food," says Isabel Almeida, head of the parish social centre, which receives donations from the food bank Banco Alimentar. “The situation is shocking,” says Isabel Jonet, head of Banco Alimentar. “The elderly in Portugal today are very isolated. Nowadays families are unable to care for the elderly at home due to economic circumstances, so that tradition has been lost,” she explains.

Portuguese pensioners are among the worst-off in Europe, with the majority of pensioners in Portugal earning between €250 and about €500 (US$273-546) per month, according to figures released in 2013 by Portuguese database Pordata. While old-age poverty started to decrease in the final years of the last decade, according to a study published in 2013 by the Paris-based OECD, the organisation fears that cuts introduced to the pension system since then will lead to higher poverty rates. Portugal’s debt crisis in 2011 forced the country to apply a severe set of austerity measures, including cuts in pensions, under terms of the country’s €78 billion (US$85 billion) international bailout. Seventy-nine year-old Cecilia Pinto, who lives with her unemployed daughter and granddaughter and earns a monthly pension of €300 (US$327), eats her meals at the centre. For dinner, her family can usually only afford to eat soup.

“I would like to be able to occasionally eat what we felt like,” she says, hesitantly, when asked how she would like her life to be. “Conditions are fragile, but we just go on like nothing’s wrong.” Last year, the government approved a "sustainable contribution" tax ranging between 2.5 per cent and 3.5 per cent for pensions higher than 1,000 euros (US$1,092) per month, after the country’s Constitutional Court rejected cuts in pensions for being “unconstitutional.” Though those with pensions below €500 haven’t been affected directly by the cuts, analysts say they have been affected indirectly. “It is natural that most pensioners earning below the national minimum wage haven’t been directly affected because it is impossible to cut their pensions even more,” says Elisio Estanque, from Coimbra University. “Elderly people have been affected as consumers however, having for example to pay higher fees to visit the doctor, and many have to leave their nursing homes and go back to their families’ households as a result of the economic situation.” Those who don’t have access to social centres are even worse-off. 80-year-old Palmira, who refuses to give her full name so as not to worry her family, has had to cut off gas and electricity at home altogether. She earns €400 per month, pays a rent of €260, and lives with both her daughter and granddaughter. “My neighbour gives me bottles of water so I can have a shower, and I don’t cook at home, because it’s too expensive,” she says, burrowing her head in her hands. "All my life I had everything, and now I have to live in these conditions."


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