Fiscal benefits and lower VAT take away 6% of state revenue

Public Treasury lost about 11.7Bn€ in fiscal revenue following decisions to attribute tax benefits and VAT exceptions below the normal 23%. This amount corresponds to 6% of GDP and even exceeds the state’s health spending. These conclusions were drawn by the latest working group’s report to which ECO had access. The report will be presented in full by the authors and government representatives in Porto, later today.

The authors add that this amount corresponds to the double of current education allocation in the state budget. Using these comparisons, the working group aims at showing the importance of such impacting decisions on attributing tax reliefs and monitoring consequent benefits.

Two components contributed to the discontinued fiscal revenue (totalling the 11.7Bn€):

• On the one hand, 542 tax reliefs were applied, 61% of which are tax exemptions.
• On the other hand, there is the so-called preferential VAT, corresponding to products and services under special VAT regimes below the 23% reference VAT, such as the intermediate VAT of 13% for restaurants and that of 6% for essential goods. There is also the special VAT regime applied in Madeira and Azores to compensate for the costs related to the regions’ geographical isolation.

The working group coordinated by Francisca Guedes de Oliveira, Professor at the Católica Porto Business School, focused their analysis on a parcel of those benefits corresponding to 4.2Bn€. Tax refunds represent a 1,435.39M€ loss, corresponding to the 35% deduction of general expenditures from families in the IRS.

Working group left a warning to current and future governments

The authors defended that fiscal benefits are “a heavy public policy instrument”, requiring “rigour” and moderation in its usage and application.

“The option to keep everything as it is will continue to allow the system to consume a substantial part of the state budget with little scrutiny, rules or transparency”, the working group warns, adding that “an efficient management of public funds is fundamental in a context of budgetary consolidation and control of the public debt.”