This was a controversial move as it’s a trendy scheme that has added considerable sums to the Portuguese economy since its inception. However, the argument against primarily focusing on attracting foreign investment harmed local denizens, who need help to meet living costs.
Rising housing and rent prices coupled with spiralling living costs are making it challenging for the native residents of Portugal to afford homes, food and other essentials. It was hoped when the end of the Golden Visa was announced that this indicated a shift towards helping families struggling to make ends meet was imminent.
In the last week, we’ve seen more indications the government are shifting direction to support its own. First, finance minister Fernando Medina announced there are no plans to lower the 6% value-added tax (VAT) levied on basic food products. While a reduction would benefit those struggling with rising costs, Medina quickly announced that Portugal would continue to grant direct subsidies to aid the most vulnerable families.
While speaking in Brussels after meeting with the European Union’s other finance ministers, Medina confirmed his government is subsidising Portugal’s poorest families, who currently spend the more significant portion of the budget covering basic food products. Additional steps to help include raising social benefits and the minimum wage in 2023.
Reinforcing the income of the vulnerable
In line with the announcement that came with the cancellation of the Golden Visa, the Portuguese government is focusing inward, turning away from the drive to attract external investment in the country. Instead, their new insular focus sees them reinforcing the income of Portugal’s most vulnerable families. Indeed, Medina’s remarks indicate that their main focus is now on ensuring the poorest in Portugal receive as much aid as possible.
With this as their focus, they aren’t considering the reduction of VAT on basic food products a priority.
Despite this seemingly positive news for poorer residents, activists and opposing politicians have been keen to highlight the issues surrounding a focus on cutting the deficit. The government are now
under fresh criticism for failing to redistribute higher tax revenues in the
face of rising prices for vulnerable families and local businesses.
Year-on-year consumer prices in Portugal had risen 8.2% year-on-year in February. While this seems steep, it is a slight slowdown compared to the 8.4% rise reported in January. At the same time, core inflation (not including energy prices and volatile food) was up 7.2% year-on-year, compared to 7.0% in January.
Unprocessed food products are rising in price, causing core inflation to grow, with the cost of fruit and vegetables surging 20.11% year-on-year in February, as energy products rose a mere 1.96%.
Extra state revenue from inflation to be redistributed
On the heels of news concerning the government’s plans to reinforce the income of the vulnerable, Portugal’s prime minister assured the country that whatever additional revenue is generated from inflation will be redistributed back to the Portuguese people.
Speaking during the Portuguese parliament’s general policy debate, António Costa was keen to emphasise the growth that has been made in terms of the economy, as evidenced by the official results of the execution of 2022’s budget. He attributed this success to the “good management” of public accounts.
Should these results be confirmed in the Cabinet meeting, there’s the prospect of issuing a programme geared towards the “support of a social nature, intervention in the area of prices, in partnership with retail distribution and production, and, thirdly, the dimension of wage enhancement.”
Costa’s comments came in response to criticism from Livre party MP Rui Tavares, who predicted the 2022 deficit could be 1% less than expected (0.5% rather than 1.5%), and questioned whether the government would willingly hold back “half a percentage point” or more to reinvest in Portuguese families by updating pensions and making an extraordinary increase in family allowances.
The prime minister was swift to point out that the reduction in the deficit in 2022 was achieved by reinvesting revenue created because of inflation and emphasised the government’s ongoing dedication to prioritising improving the position of Portuguese families who have been struggling.
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Portugal prioritises vulnerable families in the face of rising inflation
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