Portuguese prime minister outlines plan to tackle rising cost of living, keeps VAT unchanged
Luís Montenegro says the current situation may drag on for some time, but unlike other European countries he will not cut VAT on consumption.
Prime Minister Luís Montenegro outlined a comprehensive plan to address Portugal's rising cost of living during a televised address to the nation. The government will maintain the Value Added Tax (VAT) at its current level, rejecting calls to lower it on certain goods to offset the fiscal package. Instead, they will continue the discount on petroleum products' tax (ISP) until the end of the year, which will save around 1.3 billion euros.
Montenegro presented several elements of the plan, including a pension bonus and a reduction in personal income tax (IRS) bands. The pension bonus will range from 100 euros to 200 euros depending on the pension amount, with payments set to be made in December. The IRS bands will be reduced to benefit middle-class households, but the remaining bands will also change due to the progressive nature of the tax.
The government will provide a total package of 38 million euros to support sectors most affected by rising fuel costs, such as taxis, freight transport, social solidarity institutions, firefighters' associations, and farmers. Additionally, the green rail pass, which costs 20 euros a month and allows access to rail lines except Alfa Pendular high-speed service, will be extended to urban areas of Lisbon and Porto.
The Prime Minister emphasized that he will not reduce VAT on food or trade fiscal and financial policies with other countries, drawing a comparison to Spain's cheaper fuel prices, which encourages Portuguese consumers to cross the border. Montenegro cited the country's past international bailout program as a warning that short-term relief may have long-term consequences.
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