Portuguese prime minister outlines plan to tackle rising cost of living, keeps VAT unchanged

In a televised address to the nation, Portuguese Prime Minister Luís Montenegro outlined measures to tackle the rising cost of living, particularly those driven by increasing fuel prices. The plan includes a pension bonus and a reduction in personal income tax (IRS) bands, both previously announced in Parliament but now formally approved by the Council of Ministers.

The pension bonus ranges from 100 euros for pensions up to 1,611 euros to 200 euros for pensions up to 537 euros. The government also approved a reduction in six IRS bands, aiming to assist middle-class households. The government's portal published a table of IRS withholdings with simulations, but this remains a draft law requiring approval by the Assembly of the Republic.

The main strategy to counter fuel price increases continues to be the discount on the tax on petroleum products (ISP), which will remain in place until the end of the year, resulting in a total reduction of around 1.3 billion euros. Montenegro hinted at a potential increase to 25 cents per liter as early as next week, anticipating further fuel price hikes.

Additionally, the government will support sectors most exposed to rising fuel costs with a total package of 38 million euros, covering taxis, freight transport, social solidarity institutions, firefighters' associations, and farmers. The solidarity bottled gas scheme will also continue.

Luís Montenegro reaffirmed his stance of not altering the consumption tax, VAT, despite demands from the Socialist Party and Chega. He emphasized that cutting VAT on foodstuffs would compromise the returned 800 million euros to families through IRS and the pension supplement. The prime minister invoked Portugal's past international bailout program, warning that the situation may persist and urging the government not to promise illusions with heavy future consequences. He also criticized the "stupid" course of the conflict in the Middle East.