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Ponta Delgada ,  November 20, 2017

Social partners' proposal to support tax amendments infringes limit set for budget balance

In view of the public statements made by the President of the Chamber of Commerce and Industry of Ponta Delgada regarding the fiscal package set under the proposal for the reduction of VAT, Personal Income Tax and Corporate Tax, the Regional Director for the Budget and Treasury clarifies that "the Government had publicly assumed that any proposed tax amendment would have to be balanced in budget terms."
The Regional Government has created a working group with the Chamber of Commerce, UGT (General Union of Workers) and the Agricultural Federation to analyse the fiscal framework in the Region and amendment proposals. According to José António Gomes, the Government had publicly announced that, for this purpose, any tax amendment proposal would have to be balanced in budget terms. This means that, in face of the proposed loss of tax revenue, there should be concrete and objective proposals for the reduction of public expenditure or the increase of revenue from other sources with equal impact."
In order to ensure a rigorous and independent assessment of the impact of these proposals, the Regional Director stressed that "the Azorean Government has requested the international consulting company Ernst&Young to analyse the fiscal package proposed by these social partners and the comparative study of the Azores tax scheme in European context."
This analysis, he added, "allowed us to conclude that the Azores already had a more competitive tax scheme for families and companies than the rest of the country. The Azores are the region with the lowest taxes."
"In regard to the regular VAT rate, only Luxembourg has a lower rate than the Azores," stressed the government official. According to the same source, "25 of the 27 EU countries, such as Germany, France, England, Italy or Spain, have a VAT rate higher than the Azores."
As for the budget impact of the fiscal package, José António Gomes explained that the consultancy company estimated it at "around 50 million Euros and, if we take into account the VAT of the State Budget for 2018, the estimates reaches 52 million Euros. It surpasses the 40 million Euros estimated by social partners."
"Notwithstanding the situation presented to the Working Group with these social partners and a further significant drop in the Personal Income Tax, the Regional Government maintained its availability to analyse proposals that ensured another tax reduction. As has been assumed since the beginning of the process, these proposals were required to ensure the budget balance by presenting concrete and objective solutions for the reduction of expenditure, both in terms of operation and investment," said the government official.
In this context, "the only objective proposal to compensate for the loss of tax revenue presented by representatives of social partners was to increase the Region's debt. In addition to infringing the principal of budget balance, this proposal has no framework under the State Budget Law and was not accepted by the Government," said the Regional Director.
"It became clear that the representatives of social partners only defended tax amendment proposals that entailed a significant loss of budget revenue. They failed to submit objective proposals for the reduction of public expenditure insofar as these proposals did not indicate actions to be adopted to achieve this goal. Hence, the social partners did not present a comprehensive, concrete and objective proposal that corresponded to the principals defined in the creation of the Working Group and the analysis of the fiscal package," said the Regional Director.
According to José António Gomes, "it is not true to say that the process of negotiation and dialogue was nothing more than a political act, even more so because the Regional Budget proposal for 2018 already includes a reduction in Personal Income Tax that will benefit the Region's taxpayers."
Furthermore, the Regional Director for the Budget and Treasury stated that "it is not totally understood why social partners continue to mention 40 million Euros when they were informed that the loss of tax revenue associated with the fiscal package was at 50 million Euros and, after the presentation of the State Budget for 2018, this forecast rose to 52 million Euros."
"We also regret that the increase of 53.2 million Euros in indirect tax revenue, which does not include the reduction of 13.4 million Euros in direct taxes in Personal Income Tax, with the 40 million Euros estimated by social partners for the fiscal package," said the government official.
"Finally, it should be clarified that a significant part of the increase in indirect taxes, which exceeds 27% of the respective amount, corresponds to VAT adjustments for the year 2017; this operation will not be repeated in subsequent years. Hence, financing structural funds with short-term revenue is considered a bad policy for the stability of public finances," stressed José António Gomes.


Official government press-releases presented in all foreign languages interfaces of the Azorean Government Portal (Portal do Governo dos Açores) are a sub-set of the government's official press-releases daily output and are chosen for translation and publication on the foreign language interfaces based on audience segmentation criteria. The entire collection of the Azorean government press-releases is available in portuguese, here, from the GACS Press Office site.

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