Portugal’s 2013 Budget

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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
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!
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
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

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17 Comments - Write a Comment

  1. After recently considering moving to portugal we have hit a stumbling block, we are in the position of being financially independant for the reainder of our lives, after reading your book or should i say lisas book 🙂 I decided upon possibly trying portugal as a place to retire.

    However we currently live on interest gained from the monies invested in the uk, so we would have to pay interest on monies invested in the uk and again in portugal is this correct ? We are 40% tax payers as it is

    Shortly we will be travelling to albufeira to give portugal a try for approx ten days where would you advise ourselves visiting?

  2. I know exactly how you feel, Ben. We are in a similar position as you and Louise and although we’d moaned about previous tax grabs, nothing had prepared me for this. We could very likely end up paying double the amount of tax due to the shift in brackets and extras (I haven’t done the exact figures) and I don’t see how we, let alone anyone who was already in a more precarious financial situation, are supposed to swallow a huge loss of two to three hundred euros to our monthly income.

    I am now seriously worried and for the first time since moving here have started to wonder if we should be thinking about moving somewhere else for a few years. I don’t want to leave the life I have built up here but the government seems determined to crush the country.

    Unfortunately, I have no solutions, either, except to cut back further on our spending.

  3. As a portuguese, I am really sorry about that. Also, there is a way out of taxes. Starting by cutting off the Defense Ministry that does nothing since 1975 (after the Colonial war), an will see an increase in it’s reveneus up to 11% in 2013…

  4. Hi Simon,

    The broad rule is that there is a dual taxation treaty in place between the UK and Portugal, so you should never pay tax on the same income twice. I recommend you speak to an accountant – the company that has an advert on this site are the people we use and they come highly recommended. Ask for Sarah or Georgete and please say Ben sent you!

    Albufeira will not give you a very realistic impression of what it’s like to live here as it’s a fully fledged resort area. I would suggest doing a good tour of the East and West Algarve, and seeing a mixture of well known destinations (Lagos, Tavira, Portimao) and well as less well-known working towns (Vila Real, Olhao, Loule). Try to go inland as well to get a real feel for where you might like to live.

    Good luck and have fun!

    Best wishes,

    Ben

  5. Hi Julie,

    It’s depressing isn’t it? I’m just hoping that somehow the budget doesn’t go through as it stands now!

    Best wishes,

    Ben

  6. Hi Bessa – Well, that would be an idea – probably controversial, though perhaps no more so than the tax increases.

    Best wishes,

    Ben

  7. Hey Ben,

    The “eurocrisis” is constantly in the news here. The climate here is getting tough too. Unemployment is at it’s all time high and cuts have started in the public sector about a year or so ago. Private sector in some area’s had freezes since 2008 and cuts in social programs have started back then too. More and more grass roots protests have popped up due to the eroding of the middle class. My humble opinion is that if the underground economy is too big, it will hurt the majority and that’s a systemic problem with far reaching implications. But to get change to happen I think the people need to protest. The politicians need to listen to their people or fear losing their jobs to those who will act!

    Regards,
    Steve

  8. Hi Ben,

    The budget is bad, really bad, so bad that nobody likes it, and I think protest is necessary to remove this government and show to the EU and IMF that reducing the deficit in just three years is not going to work.

    However, last night while drinking my £10 bottle of Portuguese wine that I had bought at The Cooperative. I thought, “…Ben needs to see this from a different perspective..”.

    With my £10 I could have bought maybe3 bottles of good wine in Portugal. Here, in the UK someone living in a rented accommodation, which costs £800/month pays more £2000 a year for the council Tax. In Portugal, Ben, living also in a rented house (I think), pays something like 500 to 600 euros a month, plus zero of council tax. Going for a café, here they charge between £1.2 and £2 for a coffee, in Portugal its 60pences. In the supermarket, in Portugal we can get 1 kg of oranges for less than 1 euro, in the UK they charge me £2.50 for 5 oranges. In restaurants, a reasonable meal for a family of four can go easily to more than £100, in Portugal I can have better for a bit more than a half of this. Moreover, in Portugal we can get tax money back at the end of the year. In the UK, Cameron just stopped paying me the £40 I was getting each month, because my salary is above 30K.

    So, Ben relax, life is still in favour of Portugal, and no matter what they do, The Sun will still shine.

  9. I agree with the last poster.I’ve just been to Porto again for a few days & it broke my heart to come back.I try to spend a few days in both Lisbon & Porto, each year, whilst trying to decide whether I’m brave enough to move out to Portugal permanently.I’ve also been learning Portguese on and off for the past 25 yrs! This time, people actually understood me!
    I found food/cafes/hotels so much cheaper in Porto than in the UK where, as someone else has said, a cup of coffee can cost you £3.

  10. Hi
    We bought your book from amazon so that will help your income !
    halfway through the first half and i love it,may have to finish it off on the ferry as we sail on friday and have lots to do before then,if you see us walking our 2 dalmations around cabanas golf complex give us a wave
    cheers Jeff & Wendy

  11. Hi All,

    Thank you for commenting on the post.

    I agree that there are many “affordable luxuries” in Portugal that go some way to balancing things out, and it’s good to be reminded of them sometimes. You will see that today’s post is rather more cheerful…

    And Jeff, we’ll keep our eyes open for you.

    Best wishes,

    Ben

  12. Just googled ‘moving to Portugal’ and found this interesting piece, which rather moves me to comment.

    You really shouldn’t feel ‘civically and morally bound’ by tax. As a concept taxation is inherently immoral, the feudal idea that the government somehow has a larger claim on your property than you do. Taxation is just legalised theft. When we think of slavery, that is to say, a slave-owner keeping 100% of the fruits of a person’s labour, it is unthinkable that reasonable people would endorse such evil today. But what is the difference between slavery and taxation? At what percentage (70%? 60%? 50%?) does taking other people’s money magically become morally justifiable instead of theft?

    The sham answers so often trotted out of ‘the social contract’ or ‘the greater good’ have been used to justify the greatest evils ever done, and are nowhere near adequate:

    On the ‘social contract’, how does an individual, who is not morally justified in stealing, killing or enslaving others grant rights that they do not have to a government through the ballot box to do all three (taxation, war, conscription)?

    On ‘the greater good’, using such faulty logic ultimately any form of mob rule can be justified.

    Even when governments act for humanitarian reasons (increasingly rare anyway) they can only do so by violating the fundamental rights of others, which is inherently morally wrong.

    One day I believe people will look back at government in the way we look back at slavery today.

  13. I totally agree with what Paul says there is a well known saying that ” only the little man pays taxes” and the google amazon starbucks scandal is only the tip of the iceberg

    income tax is a theft of a mans labour and toil,we have enough indirect taxes, we should not have both
    we are many and they are few, and one day are time will come

    Jeff

  14. ….and I look forward to that day 🙂

  15. I know sometime has past since the last reply, however it really concerns us. We are considering Portugal as place to move to. We will be receiving monies from property rental in our country. This money get taxed in our country. I have read conflicting stories on this take and would like to clarify this issue. Will the monies we receive monthly in Portugal be taxed again and at what rate?
    If we eventually decide to buy property in Portugal, will we have to pay taxes on the money we transfer in?
    And if we decide to stay in Portugal, will our personal belongings we might bring to our new home be taxed?
    We would be moving from outside th EU, specifically from South America.
    Thanks for the informative blog.

    Best,

    Sergio

  16. Hi Sergio,

    Many thanks for your comment and I am glad you are enjoying the blog. I think the nature of your questions would benefit from professional advice, which sadly I am not qualified to give!

    I think particularly given that you are considering moving from outside the EU, getting professional financial advice would be a good next step. Sorry that doesn’t quite answer your questions, but good luck with your move plans 🙂

    Best wishes, Lou

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