Luís Miguel Ribeiro: “The whole tax policy needs to be reviewed. Portugal has 4,300 taxes”.

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Criticizing the “unfortunate scenes” played out by certain governments, which distract attention from the essentials, namely the country’s growth, the AEP leader presents ways of bringing ambition and results.

President of the Associação Empresarial de Portugal (AEP) since 2020, Luís Miguel Ribeiro is about to be reappointed until 2026. The result of the electoral act will be revealed at the general assembly on Monday, but he is leading the single list. Born in Amarante, he is also head of the AEP Foundation, vice-president of the CIP and a committed community activist.

In your business plan, you say you want to give AEP a more central role in public policy, and put Portugal increasingly at the forefront. What strategy have you associated with this ambition?

The role of a business association like AEP should not only be to serve its members, but also to intervene and demand public policies that support business activities. Our mission and our objective are to influence, criticize and demand what public policy should be: to assume once and for all that business must play a central role in the life of the country. Policies must be geared towards enabling the country to enhance the value of business, and thus achieve sustained and sustainable growth, with more and better conditions for people. This is how we put Portugal on the map, because we have the conditions, the resources, the entrepreneurs, the people who have the capacity to produce wealth and assert themselves on the global market. The latest indicators show that entrepreneurs have this capacity, despite the costs associated with the context and the fact that public policies are not adequate and do not value the role and activity of entrepreneurs and businesses.

But how does AEP approach the government?

We intervene a lot with members of government, through what we defend, through the opinion articles we publish, to raise awareness of what tax policies should be, how processes should be de-bureaucratized, how resources should be properly allocated, community funds, for an immigration policy. We need to put these issues on the agenda, not only in terms of public opinion, but also in meetings with the government, because they are essential if the country is to have better conditions for those who are here to grow and improve its competitiveness. We are also very active in supporting the internationalization of companies, in fact we are a private airport that supports trade missions and trade fairs, and the result we have today in terms of export growth is also the result of what many agents such as AEP have done. Of course, it’s not enough, but it’s the way we have to go. Because if we look at our export base today, we realize that there’s still a long way to go. We still have very few companies exporting, and when we look at the number of companies exporting and the value of exports, compared with the big companies, it’s not very many. It is also necessary to call for public policies that stimulate an increase in company size.

And this hasn’t happened?

It hasn’t. In fact, we find that companies whose mission is to grow are penalized, including from a tax point of view, with taxes penalizing larger companies more.

In terms of planning, what’s the priority?

First of all, we need to review the whole tax policy, which penalizes companies that want to grow and large companies – which doesn’t stimulate business growth and penalizes the labor factor, workers’ wages. As a result, companies have to make an extra effort to retain their staff. We rightly invest in training and qualifications. The Erasmus generation knows the world and the opportunities available to them in other countries, and they are looking for places where they can put their knowledge into practice and where they are well paid. If we have a tax policy that heavily penalizes salaries and those who have the ambition to earn more, who want to work more, we make it difficult for companies to retain staff.

Was it necessary to reduce taxes on earned income? Portugal is one of the countries with the highest tax burden on earned income, and we’re asking it to increase salaries, but not to reduce taxes… Would this be a good incentive to raise wages?

It’s fundamental. A country like Portugal has over 4,300 taxes, which clearly shows our tax complexity. Among OECD countries, we rank last in terms of tax complexity. The World Bank’s Doing Business data show that, on average, companies spend over 243 hours filling out tax returns. A country with all this bureaucracy and tax burden penalizes economic agents and penalizes people. Companies raise salaries, they make efforts, but part of these efforts are absorbed by taxes. A very simple example: on an average salary, around 50% goes to taxes, and if we do an exercise for the top two-thirds, it almost goes up to 60%. With this tax burden on labor and declining demographics, if we don’t have the capacity to have the conditions and good wages to retain people, we are condemning the country’s future. In fact, this is already one of the main problems. When you ask businessmen what worries them most, most of them point to the lack of manpower. There aren’t enough people to work, to be able to develop their businesses. On the other hand, we’re competing with countries whose public subsidies for production are far greater than those we have here.

But are you advocating a reduction in the IRS and IRC, for example?

Yes, we are advocating a reduction in taxes. We have one of the highest tax burdens in recent years. At a time when the state budget has increased revenues, due to inflation, there is some room for maneuver. We have to be responsible in this request, because the country has a very high level of debt and this should also be used to control the public debt, but this room for maneuver should be shared with those who pay it. These taxes are paid by all of us, companies and individuals. And if this generates an increase in revenue for the State, it should be shared with those who pay it. When companies increase their profits, they also pay more tax. There is a mistrust of economic agents, whether companies or individuals, and we need to change the paradigm. On the other hand, ambition is limited, because those who are ambitious are penalized.

Is this worse at a time when companies are undergoing profound transformation, through digitalization and decarbonization? Should these policies be even clearer and facilitate these investments?

Clearly. We’ve lived through a unique moment, with the pandemic and the war, which has changed the way we do business, which has changed all the programming and planning that companies had in terms of logistics and transport, in terms of sourcing raw materials, across the whole supply chain. And companies now have to adapt to this process of digital and climate transition and the obligations it entails. And the public sector needs to get on board too, so that the effort is shared. It’s sad to see this approach whereby you need support here, or social support there… We need to create wealth first, so that the state can then provide social support. Today, we have more resources than we’ve ever had with community support, but if you analyze this volume of community funds and, on the other hand, public investment, you can see that over the last decade, it has been halved. In 2022, it’s about half, both in terms of GDP and total investment, of what it was in 2010, which means we’re not able to use the resources we have. There has been no investment.

Despite this, we have export sectors. Hasn’t the growth of recent years been consolidated, or is it in danger of being inflated by digital and environmental transformation?
If we analyze GDP, we realize that a large part of it comes from private consumption. And in the current period, with inflation and rising interest rates, this is conditioned – and the indicators are already showing a decline in consumption. On the other hand, we have this investment resource which is diminishing, i.e. it represents about half of what it was ten years ago. Companies have made an effort and succeeded in increasing exports to a level that we thought would only be reached in a few years’ time; we have exceeded 50% of GDP. But we need to analyze these figures, because there is growth in exports of goods and services, but a large part of this increase comes from tourism.

It’s not enough to grow in tourism.

There’s nothing wrong with that, but we have to realize that this is a very volatile sector, and if there’s an extraordinary factor, the situation can change from one moment to the next. Let’s be realistic: we’ve had good indicators and the OECD has just reviewed our growth, but it has issued a warning because it was calculated on the basis of the amount Portugal has to invest in the RRP. And the implementation rate is still very low. If procedures are not changed, we can’t have many ambitions or illusions. On the other hand, the OECD also predicts that exports will increase, but for this to happen, public policies – i.e. tax policy, the ability to attract human resources, talent retention – need to be checked and, once and for all, the financing and capitalization conditions of companies need to behave differently from those of agents in the financial sector. Because companies need to invest to be competitive.

And there are no good financing conditions?

Portugal generally has worse conditions than the countries with which it competes. Banks are very conservative, especially when it comes to SMEs. Banks want more and more guarantees, so we need to create guarantee instruments so that when companies want to expand, even if they don’t have a track record that reassures the bank, they can do so and have ambition. Because there can be no growth without investment. Much of the investment in recent years has come from the private rather than the public sector. This means that the private sector is ready and willing to invest, and that the conditions are right for this investment to add value for companies and for the country. We need to create the conditions for this investment to be carried out competitively. If a Portuguese company finances itself with higher costs, it loses competitiveness in relation to companies in other countries.

Returning to the question of the workforce, it’s difficult to hire and retain people, and the need for ongoing training and retraining is great. How are companies responding to this challenge?

Companies are doing their best in a context where there is a lot of bureaucracy to bring in people from other countries. The process of legalizing people to work is terrible. We don’t have an immigration policy. We can’t bring in people to meet business needs, we have to bring in families, people who have a more structured life – which solves other problems in the country. If Portugal’s natural population growth is negative, it needs to be offset by net migration. And for that, we need an immigration policy. But we also need the right conditions to keep the people who are here. Around 50% of people working in the manufacturing industry have primary education as their main qualification. This is still a reality. And when we talk about digital and environmental transition, we need to prepare people, train them and give them the means to retrain and upgrade their skills. But this also stems from a public policy option, because the vocational training offer has been left behind. The AEP was born 173 years ago with a great objective, the great challenge of “training the working classes”. Today, we still have this great need to train the human resources who are in companies. But we can’t spend money on education or on the Ministry of Employment, through the IEFP, without first listening to companies and finding out what their needs are.

In other words, there should be an integration, an alignment between the structures that provide training and the companies.

Yes, it shouldn’t be a top-down definition, while the process should be the other way around, asking companies and related entities, such as business associations, at every stage what the needs are. We need this flexibility, this ability of institutions close to companies to respond to these needs. Faced with the challenges that the market is going to pose, and the opportunities that it brings to companies, we need to be able to offer rapid and effective training and capacity-building for people in a certain sector of activity. Because the market is fast-moving and volatile, and we need to be able to respond quickly. Otherwise, by the time we do, it’s already too late. Look at PRR, which took two years to reach companies…

Has it started to arrive?

It has started to arrive a little, some advances, but when we’re talking about innovation processes and two years have gone by…

And with inflation soaring.

This inflation has completely changed the context and, in some cases, the needs and ability of companies to carry out this process. Some companies have already given up or found another solution. This cannot continue. With the volume of financial resources available to us through community programs, and the need for companies to get a rapid response, we can’t have processes that take so long. This has to change, whether in the RRP or in Portugal 2030, taking into account the experience of the recent past, in Portugal 2020.

Look at what went wrong in PT2020.
Yes, we had a lot of money to execute and what did we do? We increased the participation rates of public entities, municipalities, CIMs, for projects already executed, simply to spend the money. Those are the very words, spend the money that existed, because many companies give up and the execution rate is then low, but this value cannot be re-tendered.

So what’s to be done?

We’ve argued for many years that business notifications should be continuous. When the company needs it, when the opportunity or need arises, it should be able to submit a request, not the other way around. The company has to wait until the notice is published? This is totally false. As soon as a company needs financing, whether for a business opportunity or to invest in a product or service to make it more competitive, it must be able to submit an application, otherwise the timing will be wrong.

Do you have a record of abandoned projects?

No, but I do know the figures for commitment rates and execution rates, which show this. And it’s not just in the final phase of projects, it’s throughout the programs. And this has a serious impact on companies and the country. Because it’s one thing to have a resource available when you need it and when it adds value, because you can generate income and revenue with it. It’s quite another to be able to call on the support and funding of this community program, even if there’s no pressing need at the time. The result is not the same, and that’s why business notices should be open all the time.

You wrote in Dinheiro Vivo that political unrest, with a lot of talk about business and casinhos and the deterioration of institutions, is damaging growth. Do you fear that these rhythms will soon run out of steam?

Over the last few decades, we’ve been growing at an average rate of 1% a year, which is half the rate in Europe. So we need much higher growth than the rest of Europe to converge. We must have this ambition; it must be one of the country’s objectives. And to have the ambition to grow, all the things we’ve talked about are fundamental. I think we should value the good indicators and use them as a stimulus to keep growing, without it being overshadowed by the country’s political environment, in which we focus more on these businesses and casinhos, as I mentioned in Dinheiro Vivo, in one of the 100 articles I’ve already published. Because it distracts people from the essential. When we should be concentrating on enhancing and stimulating our performance, we’re confronted from morning to night with a series of problems and situations that shouldn’t be happening. Because it’s our performance that makes the difference in people’s lives. The others are unfortunate scenes in the performance of certain protagonists, which shouldn’t happen. The country must have a commitment from its leaders with economic agents to create a climate of trust, a climate of ambition, so that the country can have another performance.

As well as confusing people, do these affairs and small businesses also confuse politicians?
That’s what we’ve seen, politicians very focused on these discussions. And at the root of it all is a political philosophy of support, subsidy, dependence on the state, which has to change. We need to follow the examples of other countries where the state plays its role, but where citizens and businesses depend on the state as little as possible. This is a country that functions well, with public policies that enable everyone to carry out their activity without this dependence, but with a complementary commitment, where everyone plays their role and assumes their responsibility. And if that’s the case, I believe we’ll have a country with much better indicators, because we have entrepreneurs, people and resources, all we need is the capacity to carry out the diagnoses that have all been made.

But shouldn’t we diversify the economy?

Of course, but that’s the strategy of every business, every company, every country. Diversification reduces risk. But if today we have a sector like tourism that makes the contribution it does, we should value the contribution of this sector. We must not forget that we must continue to invest, and three years ago AEP presented the government with a program for the reindustrialization of the country, with ten measures, with a clear ambition for growth, for an increase in the gross added value of industry in the overall gross added value, compared with what is happening in other Central European countries. In other words, a 10% increase in the industry’s GVA as a percentage of overall GVA, a strong bet on qualification, on the creation of industrial brands that we don’t have to assert our industry and our products at international level, to stimulate all the design challenges, on the way we present the commercial part of the industry. Because today’s industry is increasingly a set of associated services, and industry also creates jobs, because every job created in industry creates three associated jobs through the service that is created, and really creates wealth, creates added value for industry. And we have this DNA in the country.

What happened to this program? Has it been used?

No, unfortunately not. Unfortunately not. One or two of the measures we proposed appear here and there, but we understood that it had to be a structured program for a decade, with very well-defined actions. We even quantified the amount of investment to be made in the actions, identified the programs from which we could draw resources to allocate to this investment in industry and, in fact, I still say it makes perfect sense, because I said at the outset that our exports come mainly from traditional sectors that have innovated, reinvented themselves and are competitive on a global scale. So we need to capitalize on this DNA, this capacity of our entrepreneurs, this ability to adapt that we’ve had in difficult times, where we’ve overcome those difficult times and we’re giving that response. Now, if we focus on this development of industry, on the development of the endogenous resources that we have on the territory, on the circularity that we must have in our economy, in particular because around 30% of our imports are intermediate consumer goods. If we invest in industry and in the circularity of our economy, we’ll reduce imports, improve the balance of trade and in fact contribute to a better-performing country. And that’s what we have to do. Once again, we have the resources, we know what needs to be done, and we need the capacity to do it.

Lagarde has already warned that interest rates will continue to rise, posing a risk to planned investments by companies still struggling with inflation. Have logistics prices stabilized or are they still unsustainable?

Logistics prices have stabilized, some have adjusted, but they remain much higher than before the pandemic. Interest rates, for those who invested relatively recently, are now having a huge impact on businesses and individuals. Inflation has risen, even in the face of what had already been an increase in supply chains for raw materials, with difficulties even in that supply. In other words, what we have here is a rise in costs that has posed another challenge to our companies, because it has occurred mainly in European countries, and we, who are in Europe, have felt it strongly. This deprives us of our competitiveness on a global scale, when we compete with other economies that have not suffered the impacts we have, in addition to the contextual costs we already mentioned in the interview. As a result, interest rates are rising, heavily penalizing those who have invested in recent times, heavily penalizing consumption, inflation is rising and creating pressure on prices, wage increases are also contributing to this, and the companies that have had to do this, and it’s not by legal imposition or decrees, it’s because the labor market, which is like any other market, if supply falls and demand holds up, it’s necessary to raise the price and, as a result, wages have risen. All this puts pressure on the final price and that’s why we’ve had inflation, even if the pace of price increases has slowed, but we mustn’t forget that it’s not a question of lower prices. Companies are making a great effort, because the increase in production costs, despite everything, is much higher than the increase in the price of inflation, the consumer price index. In other words, companies are making an effort, but this effort also has its limits, and so we need to create the conditions so that this effort by companies is also offset to some extent by a reduction in the background costs that companies continue to bear.

At the end of last year, AEP launched a think tank to map out the country’s future. What are the conclusions of this think tank?

Many conclusions have been drawn, but they are mainly in line with what we have been talking about throughout this interview. In other words, we must increasingly follow a path of rapprochement and collaboration between the science and technology system and companies, because innovation is a critical factor in competitiveness that we must increasingly valorize. The issue of human resources qualification is one of the other fundamental points mentioned, in which we need to create conditions to give people better conditions, to make them better collaborators and to solve the problem of productivity, or to continue to solve the problem of productivity, which is in fact a central issue in the challenges that the country and companies have to face. In addition, we have financing problems, and we need to find other mechanisms so that companies don’t have to rely solely on banks for financing. And there’s a long way to go. We need capital markets, venture capital and crowdfunding, we need business angels, we need a diversity of resources and we also need entrepreneurs who are open to investors in their share capital. As someone said to me some time ago, we can’t want to be global in terms of the markets we sell into and want to be familiar in terms of capital structure. Today, these things don’t go together. We have to open up and resort to other means and financing, even if we know that to adapt and accompany all these transitions, we need to invest. And investment requires resources. Companies need to improve their capitalization, their financial autonomy, so as to be better prepared for the difficult and complex times we are living through. To achieve this, institutions such as the Banco de Fomento must, once and for all, put instruments in place, because that’s their role.

And isn’t that what’s happening?

That’s not what I see at the moment. I believe that people can make a difference and improve Banco de Fomento’s offer, but once again, there’s a question of timing. This should have happened five or six years ago, we already expect robust products and services from Banco de Fomento, so that companies can benefit from better conditions of access to financing and capitalization. Unfortunately, this is another example of things that are being created and are very well designed, but which we have not yet been able to implement.

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