Essential points of 2022 State Budget bill

The Portuguese economy is expected to continue to recover this year, but the uncertainty caused by the war has forced the government to cut growth to 4.9% and launch measures worth 1.8 billion euros to mitigate rising prices.

In the draft 2022 State Budget (OE2022), delivered on Wednesday in parliament, the government revised the projection slightly downwards, by 0.1 percentage points, in relation to the macroeconomic scenario presented in the Stability Programme (PE) for the period 2022-2026, released on March 28, which pointed to growth of 5% in 2022, and 5.5% in the OE2022 proposal rejected in October.

The finance team, led by Fernando Medina, said that the OE2022 “is presented in a context marked by the recovery of the Portuguese economy and the challenges and uncertainty resulting from the military invasion of Ukraine by Russia”.

He said that this growth, together with a reduction in spending associated to emergency measures adopted during the pandemic, should make it possible to reduce public debt to 120.7% of Gross Domestic Product (GDP) from 127.4% in 2021 and the budget deficit to 1.9% of GDP, a downward revision from the 3.2% forecast in October, but maintains the target set in the 2022-2026 Stability Programme.

The budget proposal maintains the scenario for the labour market set out in the PE, with an estimated unemployment rate of 6% for this year, a downward revision from the 6.5% forecast in October.

According to the Government, the geopolitical tensions resulting from the invasion in February “have aggravated inflationary pressures” through an acceleration in the price of fuel, energy raw materials and several primary goods.

To mitigate the impact of inflation on the economy and protect the purchasing power of families and the production conditions of companies, the government announced extraordinary measures, such as the reduction of the ISP (fuel tax) equivalent to a reduction in the VAT rate from 23% to 13%.

In the area of taxation, it maintained the creation of two new IRS (personal income tax) scales, splitting the 3rd and 6th scales, with this tax now having nine scales.

The OE2022 will be debated in parliament on April 28 and 29, with the final overall vote scheduled for May 27.

The main measures set out in the government’s proposed State Budget for 2022 are as follows:

Taxes

The number of income brackets subject to IRS will increase from seven to nine in 2022, thus confirming one of the main tax measures of the version of the OE2022 that was ‘rejected’ in October.

The two new brackets cover income between 10,736 euros and 15,216 euros, which is taxed at 26.5%, and income between 15,216 euros and 19,696 euros, taxed at 28.5%.

The IRS regime is extended for two more years to allow young people to benefit from a discount on the tax, also extending it to self-employment.

The government intends to extend until 2023 the Regressar (return) Programme, which grants tax incentives to emigrants who want to return to Portugal, and the new OE2022 proposal brings a solution for those who returned in 2022.

Companies will no longer have to make the special payment on account (PEC) of IRC. This measure responds to the demands of several business confederations and associations and aims to give more liquidity to companies, especially smaller ones, according to the OE2022.

Pensions

Pensioners who receive up to 1,108 euros per month will have this year an additional increase of up to 10 euros retroactive to January.

This increase had already been announced by the government and will cover around 1.9 million pensioners and will cost 197 million euros, according to the presentation by finance minister Fernando Medina.

In 2021, the special increase was paid to pensioners receiving up to 658 euros.

Social action

Charges with social action are budgeted at 2,241.9 million euros, which represents an increase of 9.7% compared to the provisional budget execution of 2021, “thus ensuring the continuity of the reinforcement in the expansion of the national network of integrated continuous care (RNCCI) and the reinforcement of expenditure associated with cooperation agreements with the third sector.”

In the 2022 budget, 58.4 million euros are considered for the Recovery and Resilience Plan (PRR), covering several social responses.

On the issue of poverty, support of 60 euros per vulnerable family will be allocated to compensate the price increase of the food basket, and 10 euros per bottle of gas will be extended from households benefiting from the social energy tariff to households covered by minimum social benefits. In parallel, European funds will be mobilised to support Ukrainian refugees, in particular with accommodation costs.

The subsidy to support informal caregivers will be extended to the whole country, with 30 million Euros foreseen for this measure.

The government also intends to ensure the effective monitoring by reference professionals of social security and health and the extension to other measures such as access to the social tariff of electricity and natural gas, equating informal caregivers who receive support allowance to other beneficiaries of solidarity benefits. The aim is also to ensure that informal carers can be given priority when attending public services

Day-care centres, infancy

Free day-care centres, which will be implemented progressively over the next three years, will cost 16 million euros in 2022. From the next school year, crèches will be free of charge for all children who enter crèches with a cooperation agreement with social security. In this first year, children up to one year old will be covered. In the following school year, it will be extended up to two years old and in 2024/25, it will cover children up to three years old.

The Childhood Guarantee is a new benefit created by the government to ensure that all children and young people under the age of 18 in extreme poverty receive 1,200 euros per year (100 euros per month).

It is a complement to the family allowance and the implementation of this measure will be phased in over two years, whereby in 2022, the guaranteed amount will be 70 euros per month (840 euros/year) and in 2023 it will be 100 euros (1,200 euros/year). With these measures, it is estimated that around 500,000 children will be covered, with a global impact of 140 million euros in 2023.

According to the draft law, the measure has a transitory provision that foresees that the complement will be paid for the first time in the first quarter of 2023.

Health

The National Health Service (NHS) will have an increase of 700 million euros, an amount identical to that provided for in the OE2022 delivered in October last year which was rejected in parliament. The government said this reinforcement is intended to “quickly recover health care activity, through the hiring of additional health professionals and the gain of autonomy of health services to hire missing professionals” for the NHS.

The health budget programme provides for total consolidated expenditure of 13,578.1 million euros, which exceeds the provisional execution of 2021 by 5.6%, and an actual consolidated expenditure of 13,529.4 million euros, identical to the figures in the rejected proposal at the end of 2021.

The NHS will be run by an executive board, a new body to coordinate the healthcare response to patients and monitor its performance. According to the document, this executive board, provided for in the new NHS Statute approved by the government in October 2021, will have the “role of directing the NHS at a central level, coordinating the healthcare response of its health units, ensuring their networked operation and monitoring their performance and response.”

Education

The sum provided in the OE2022 for basic and secondary education and school administration grows by 8.5% compared to 2021 to a total of 7,805.7 million euros. The total consolidated expenditure for science, technology and higher education increases by 21.2% to 3,124.8 million euros.

The main novelty of the OE2022 proposal in education is the commitment, already announced, with measures to respond to the problem of the lack of teachers in schools. The executive refers to the alteration of the recruitment regime, a new teacher training model, in articulation with higher education, and the creation of incentives for the teaching career and the establishment of teachers in areas of greatest need.

Now without the sectors of sport and youth, the budget for education has shrunk slightly as a result of this change in the organic structure of the government and has a total budget of 7691.2 million euros. This is 114.5 million less than the proposal rejected in October, but the 6,960.2 million for schools, which receive 85.4% of the total, is maintained.

Among the various references made to the war in Ukraine in the proposal, the government stresses the “rapid integration” of students receiving temporary protection in higher education. The document provides that university students who were attending Ukrainian higher education at the beginning of the Russian invasion can enter Portuguese institutions “through appropriate entry routes” and also ensures the allocation of “adequate social support”.

Justice

In a budget that foresees over 1.6 billion euros for Justice, reforms and investments to be implemented in 2022 include “the availability of the information system for monitoring the national Anti-Corruption Strategy” and “the promotion of electronic interoperability of the Administrative and Fiscal Courts with the Tax Authority with a view to dematerialised access to the electronic process as a tax enforcement body”.

The introduction of the new Magistratus and MP Codex IT platforms in the courts of first instance is one of the investments scheduled for completion by 2022.

Also this year, the government intends to conclude the revision of the Insolvency and Company Recovery Code (CIRE), for the “optimisation and speeding up of insolvency processes, to adapt it to digital format and establish exclusively electronic procedures, as well as “the amendment of the status of the judicial administrator with a view to reducing restrictions on the exercise of highly regulated professions”.

In terms of investment in the justice sector, the OE2022 provides for a sum of “87.6 million euros, of which 38.6 million euros are allocated to the Justice Financial Management and Equipment Institute (IGFEJ), essentially to finance works and/or construction in Ministry of Justice buildings (courts, prisons, judicial police facilities, among others), and 30.3 million euros are allocated to the funds budgeted under the Recovery and Resilience Plan (PRR)”.

Public investment

Public investment will increase by 30% compared to 2021, according to the OE2022, representing, together with the Recovery and Resilience Plan (PRR), 3.2% of GDP.

The increase in investment includes, “in addition to the boost that comes from the PRR”, a trajectory “consistent with the degree of maturity of structuring investments planned before the pandemic, estimated at 1,997 million euros in 2022”.

Added to these structuring investments is the PRR, whose “public investment by the government associated with the PRR projects represents around 1,026 million euros”.

Banking

The Government expects that the public coffers will collect, in 2022, 495 million euros from dividends from the Bank of Portugal and state controlled Caixa Geral de Depósitos (CGD) bank, the same amount that was included in the proposal presented in October last year. The executive led by António Costa provides 295 million euros from the Bank of Portugal and 200 million euros from CGD.

The OE2022 maintains the special contribution on the banking sector, which is expected to raise revenues of 178.8 million euros, and the additional solidarity contribution on banking, which is estimated to raise 34 million euros for public coffers.

Fernando Medina explained at a later press conference that the government has not included in the OE2022 any transfer to the Bank Resolution Fund for lending to Novo Banco.

Support for companies

The OE2022 provides 2,615 million euros in support for the recovery of companies and 1,150 million euros for climate and digital transition. With regard to the Capital and Resilience Fund, the recapitalisation of companies affected by the Covid-19 pandemic is foreseen, amounting to 1.3 billion euros.

The capitalisation of the Banco Português de Fomento (BPF) to support companies is 250 million euros and in the incentives and subsidies under the Recovery and Resilience Plan (PRR) 900 million euros are available for innovation, digitalisation, qualification and decarbonisation, the document reads.

Tax relief for companies is also planned, with a tax incentive for recovery (IRC tax deduction of up to 25% of investment), amounting to 150 million euros, and the end of the PEC – special payment on account and relief from autonomous taxation of IRC, of 15 million euros.

Transport

The fare reduction support programme (PART), which allowed the reduction of the price of public transport passes, has a base funding in 2022 of 138.6 million euros.

The programme to support the densification and strengthening of transport supply (PROTransP) will have a budget of 15.5 million euros this year, an increase of 500,000 euros compared to the State Budget for 2021.

The Government intends to invest 473 million euros in Railway 2020 and 51 million euros in highways this year. Investment in the expansion in metro networks “in the coming years” will amount to about 7 billion euros, of which 317 million in 2022.

The government plans to introduce, later this year, changes to the laws governing the activity of taxis and transport in unmarked vehicles from an electronic platform (TVDE).

TAP

In 2022, within the scope of TAP’s restructuring plan as approved by the European Commission, a financial support from the Portuguese State of up to 990 million euros is foreseen.

Media

The government will maintain the value of the Contribution for Audiovisual (CAV) that finances RTP. Thus, the value of the CAV that appears on the electricity bill will remain in 2022 at 2.85 euros.

The executive plans to “strengthen the position” of the Lusa Agency as a “public service body”, without giving further details. A budget of 16.52 million euros is planned for Lusa.

(Article last updated at 2h44 pm)