Portugal’s tax department has collected more than €18 billion to the end of June this year, €576 million more than in the same period in 2015.
The 3.2% rise was mainly due to an increase in income from indirect taxes, charges levied by the State on consumption such as IVA where the rate of growth has slowed but is still positive.
According to the budget execution summary published by the Budget Directorate-General (DGO), the State received €18.373 billion of which €10.87 billion was from indirect taxes and €7.5 billion was from direct tax revenues such as income tax and corporation tax which was down on last year.
The increase of 8.7% of revenue from indirect taxes such as IVA was due to a 'favorable performance in the collection of most of these taxes," according to the DGO's somewhat simplistic explanation.
The State is still spending more than its income with public debt up €6.2 billion to €233 billion from January to the end of May 2016.
There is no slack in the remaining 6 months of the 2016 budget as there already is slippage against deficit targets with troubles ahead from Novo Banco and Caixa Geral and just €543 million left in the country’s ‘cushion account.’
There also is renewed pressure from Brussels over sanctions and the need for a Plan B which Portugal’s government refuses to admit will be needed.
Other determining factors for the second half include the reduction in VAT in restaurants which came into effect on July 1st; public sector pay rises that could boost domestic expenditure; the reversion to a 35 hour week on July 1st may raise costs as temp staff are brought in; the recapitalisation of Caixa Geral and the Novo Banco sales process which will has been an expensive failure whether it now is sold on, or retained.
The Council of Public Finance points out two additional areas of expenditure, "the recapitalisation of Caixa Geral, closing Novo Banco branches and clearing the Banco Espírito Santo account holder claims."
The accounts are shaky but at least the taxman is collecting more of the money due despite a healthy grey economy.
The government's official statement runs as follows:
1ST SEMESTER DEFICIT DECREASED €971 MILLION
"The latest budget implementation data released today shows that, up to June, General Government’s deficit in the first semester decreased 971 million EUR when compared with the first semester of 2015, stated the Ministery of Finance.
This reduction, on a cash basis approach, is explained by a stabilization on expenditure (+0.2%, which is below inflation) and by the increase in revenue (+2.9%). This improvement in the first semester largely exceeds the 2016 State Budget target.
The positive signs observable in economic activity and on the labour market underpin the favourable development on tax revenues and on social security contributions. Tax revenues increased by 2.7%, even taking into account the 410 million EUR increase in tax refunds. Social contributions increased by 3.8%, largely explained by the increase of 4.7% of the Social Security contributions.
Expenditure control continued to outperform the targets set in the 2016 State Budget mainly due to the results in two key areas in budgetary policy: intermediar consumption curtailment and public wages and employment control. Purchase of goods and services in the Central Government and Social Security decreased 2.7% whilst expenditure with certain and permanent wages increased 2.2%.
The primary surplus reached a value of 2122 million EUR, representing an increase of 1244 million EUR when compared with the same period of 2015. General Government’s primary expenditure decreased by 194 million EUR.
Moreover, Eurostat just released, for the first quarter of 2016, the seasonally adjusted General Government deficit to GDP for the European Union. The Portuguese deficit stands at 0.8%, in comparison with the 1.6% average in the Euro area."
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A direct tax is paid directly by an individual or organisation to the State. A taxpayer pays direct taxes to the government in property taxes, income tax or taxes on assets.
Direct taxes are different from indirect taxes, where the tax is levied on the seller, and paid by another, such as IVA.
