The government’s program, submitted to the Assembly of the Republic on Saturday, outlines a measure for reducing the IRS. What is the plan from Luís Montenegro’s team?
The aim, according to the document, is to “reduce the IRS by 2 billion euros over the legislatura, including 500 million already in 2025, lowering the tax burden on income, especially for the middle class.”
In practice, the government intends to “reduce the IRS up to the 8th bracket, by 2 billion euros by 2029, with a reduction of 500 million already in 2025 (in addition to the 2025 state budget).”
Furthermore, the government seeks to “improve the progressivity and coherence of the IRS with realism and social justice,” emphasizing:
- “Revise IRS brackets to ensure they are adapted to the reality of the Portuguese economy;
- Introduce a synthetic and comprehensive notion of income subject to IRS, which corrects injustices and under-taxations resulting from the current restrictive definition of IRS taxable income, allowing for greater relief of marginal rates;
- Create a work subsidy integrated into a unique social support, fully coordinated with the IRS minimum existence, and financed by the consolidation of the myriad of dispersed social supports;
- Create tax-exempt savings accounts, adopting a regime where a certain level of contributions by workers and their employers are free of IRS, except if and when they are distributed, paid, or in any way appropriated by their holders. This involves introducing savings accounts with access to a wide range of instruments, with possible entry limits, inspired by the UK’s “ISA accounts” model or the United States’ 401K accounts. Contributions and reinvestments of these proceeds are not taxed, including if they are used to amortize a mortgage on the family home. A similar treatment could be considered for rental and capital incomes (applying the principle that, if reinvested, they continue not to be taxed).”
