October 16, 2012 by
I love it in Portugal, and often say that moving abroad is the best thing we ever did. However, I’ve always been determined to ensure that my blog tells it like it is. On that basis, right now I’m pissed off, disillusioned and demotivated.
The reason? Portugal’s 2013 state budget.
Portuguese news doesn’t always make it beyond our shores, but the 2013 budget is so hardcore that high-profile news reports have appeared everywhere, from the New York Times to Al-Jazeera. Typical words used include “suffocating,” “harsh,” and “controversial.” The opposition socialists describe the budget as a “fiscal atomic bomb.”
And let’s not forget that even before this budget, Portugal had already, over the past two years, been hit with the second-largest overall tax rises of any country in the world. (For those interested, the only country with larger increases was Argentina).
Portugal -Money's too tight to mention
So, what does it mean to us?
Well, for a start, we’re still smarting from the additional 3.5% extraordinary tax that we paid a couple of months ago on our income from 2011. When this was imposed, it was supposed to be a one-off. Well, that’s not how it turned out, because we now have to pay an extra 4% on everything we earn next year as well.
They’ve also increased the overall income tax rates and reduced the number of bandings in such a way as to push us into a higher bracket. Now, I’m not nearly clever enough to do the sums without a simulation from my accountant, but from a quick glace it looks like the rate we pay on most of our income could be going up by about 7.5%.
Add that on to the extra 4%, and we could be handing the government up to an additional 11.5% of what we earn in 2013.
Just imagine that for a moment. Think about what you earn and imagine getting a bill for 11.5% of it, ON TOP of the tax you already pay.
If you really want to wind me up you can tell me that “things are tough in the UK too.” But they’re not really are they? Without the UK’s generous tax-free allowance on the first £7000 of each person’s earnings, we were already paying more income tax in Portugal before any of these austerity measures.
Let’s put our personal situation in perspective. I can’t deny we are fortunate enough to be relatively high earners by Portuguese standards. It’s tasteless to go into detail, but suffice to say that between the two of us we bring in the same as several people on the Portuguese average wage. However, and this is the important bit, no more than a couple of thousand Euros annually comes from Portugal. My wife is paid by a UK based company, and I have clients everywhere from the US to Australia. But, as fiscal residents, we pay all of our tax to the Portuguese government.
They keep on taking our money!
If I (or indeed anyone), thought that the tax increases were going to make a blind bit of difference to the economic situation in Portugal (or the world), then I would adopt a more stoical attitude. But these increases are only estimated to bring in €3 billion.
Last year, Portugal borrowed €78 billion from the International Monetary Fund and the European Central Bank at an interest rate of around 5%. Well, I’m no economist but the €3 billion that comes at the cost of crippling the middle classes (and stopping them spending) isn’t really going to be much help.
Meanwhile, anyone who lives in Portugal is constantly aware of the country’s black economy, estimated to equate to 24.8% of GDP in figures going back as far as 2010. All of this “how much for cash?” business adds up to rather a lot, and in Portugal this culture is endemic.
That all seems rather unfair to a couple like my wife and I who have always felt civically and morally bound to declare and pay. Sadly, when the government has to pick a demographic of people to screw money from, those they know are honest enough to already pay tax are the easiest target. I see the government equally culpable for not doing anything about this as those who haven’t completed an honest tax return in years.
Last night, protesters surrounded parliament in Lisbon. Although the demonstration calmed before they managed to storm the building, the atmosphere was tenser than in previous austerity protests.
Protests are becoming less friendly
Protesting’s not in my nature. I see little point unless you have a better idea of what the government should do. Sadly, the lack of such an idea is what makes this situation so very depressing.
I do have a strategy, however, which alone acts as proof that the government’s plans are misguided. For a start, I’ve stopped spending, as everyone does once a siege mentality kicks in.
Once the new tax bandings are formalized, I will be asking my accountant to do some simulations – comparing our tax liability in Portugal with what it would be in other countries, and also looking at whether it would actually be worth us earning a little less to push us down the tax bandings. Given that there is social security to pay as well, we arrive at a point where we are left with so little of every extra €100 we earn, we’d be better off not doing the work and spending the time picking fruit and making jam and chutney.
I’m not the only “well off,” taxpaying expat considering this strategy either.
So, hats off to Portugal’s finance minister for creating a budget that will either cause us to deliberately earn less and adjust our standard of living, or frighten us off to another country, taking all of our tax revenue with us. Well done, indeed.
After moaning so much, it’s probably not the best time to draw your attention to my book about moving abroad to Portugal, but it’s worth a try – the royalties might help us pay our next tax bill – see below!
Moving to Portugal: How a young couple started a new life in the sun – and how you could do the same
Image credits: Geograph, Photopedia