The Minister of Finance guarantees that the State “fully returned” the excess tax revenue it obtained through VAT, IRS, IRC and other contributions. On the real impact of the drop in VAT on the basket of essential food goods, Fernando Medina recalls that not even the Government can prevent the fall in purchasing power in an inflationary context and that more support was not given because you can’t give what you can’t have to give.
In an interview given this evening to RTP, the person in charge of the Finance portfolio was first asked about the turnaround in the VAT issue. It is recalled that the Government rejected applying the tax exemption for almost a year, in the face of strong criticism from the opposition. Waiting, after all, was part of the strategy, says Medina.
Applying a VAT reduction only now “changes everything”, he stresses. “Because in the case of Spain, when they lowered VAT, without an agreement on price stabilization, the risk that distributors could maintain prices was a consequence and a real risk”, he explains, taking the opportunity to praise the agreement concluded. with both the production sector and the distribution sector, with whom there was “a genuine desire to reach an agreement and that was important”, reinforces the minister.
Even so, recognizes the person in charge of guardianship, “it does not mean that there will not be some fluctuation” in the prices practiced. “The objective is price stability over six months”, he also says, recalling that this part of the agreement is up to distribution to maintain.
“There were no conditions for an understanding [antes]. You can clearly see the difference between measures with and without an agreement”, clarifies the minister, pointing to the cases of Spanish and French neighbors as an example of what was not wanted to be achieved. “We learned from both experiences, which gives us confidence that the decrease [do IVA] reaches the pockets of the Portuguese”, underlines Fernando Medina.
“It’s not just a matter of lowering prices, but of looking for a stabilization in the market”.
If, from the consumer’s point of view, the problem starts and ends in supermarket aisles, for the guardianship, the agreement had to reach production – a package that the minister himself admits cost between 160 and 200 million euros; value that has “an important meaning”.
However, the reduction of the tax, through the agreement announced this week, does not safeguard fluctuations in prices arising from other context costs, namely transport, recognizes Medina.
“It’s not a fortune, it’s more of a contribution”
Asked about the low impact of the VAT cut on the final invoice, and whether the measure is just another “political marketing strategy”, in the words of the interviewer, the minister is categorical in defending the idea that every cent counts: “None family spends 10 euros a month at the supermarket. In a basket of 200 euros per month, there is a saving of 12 euros ”, he says.
“VAT is now considered a tax that penalizes low-income families more”.
“We didn’t just present this measure. We have been presenting measures since the worsening of inflation”, he recalls, listing right away the intervention in the fuel sector, where the ISP subsidy is still in force, and the measures created to increase electricity and gas.
In the most recent package, guarantees the minister, “the most important measure, with a financial impact, is the support of 30 euros per month aimed at the most vulnerable families”. The support, clarifies Fernando Medina, will cost the State coffers €700 million.
Still on the increase in the cost of living, particularly in the prices of food goods, the minister recognizes the old maxim of economics: what it costs today 2x hardly cost again x. “There will be products that will not return [a valores de há dois anos]. What we are seeing is a decrease in prices, which are costs of getting products to the distribution system”, he says.
As for proposals by some opposition parties to fix prices, that is out of the question. “Price regulation would lead to the possible disappearance of some goods from the distribution chain”, warns Medina.
“It’s called balance”
The Minister of Finance also clarified that the increases in public administration wages implemented at 1% result from the difference compared to the nominal indicators for 2022. “The increase that we pointed out in October, which resulted in an agreement with the unions between 2% and 8%, had a reference value of 5.4%” over four years. What happened, he explains, is that “the correction was made in relation to last year’s reality”, still maintaining the agreement.
The decision to increase civil servants by 1% “is transversal to all civil servants”, he reinforces.
There were two problems, he recalls: on the one hand, the food subsidy in the civil service “was lower than that decreed by the Government as a minimum” for the private sector, which led the Executive of António Costa to understand “that this was the moment to do this correction”. On the other hand, “there was a correction of the indicators in relation to the scenario we had”. “It was a relationship of justice in relation to the agreement” concluded with the unions, he defends.
Still, Medina says wage increases are not a valid response to inflation.
“The increase in wages, like the increase in profits, the increase in demand… In an economy experiencing inflation, it always has to be controlled, so as not to worsen the inflation process itself”, he explains. “I want to be very clear: we cannot have, at a sensitive moment in terms of controlling inflation”.
the inflation core, as he calls it, stripped of the floating components, “is well above the values we want”. “We have to take a prudent and thoughtful approach. It’s called balance,” he says.
“In 2023, we followed an income and salary policy – both in Public Administration and in the private sector – different from the one developed in 2022, the year in which we had elections, long months until inauguration, a Budget in April… There was a very clear speech from the European Central Bank (ECB) that we were in a transitory phenomenon. This ECB analysis starts to change from September onwards and we immediately adapted our policy”, guarantees the minister.
However, neither a decrease in VAT nor an increase in wages can ensure a recovery in purchasing power: “Nobody can guarantee – I cannot guarantee – purchasing power. It would not be true to say that in an inflationary crisis no one would lose purchasing power”, he argues.
“What we can say is that we have to have balanced, fine and demanding driving to meet the maintenance of income and maintain that level, unequivocally”.
Not going “beyond debt and deficit reduction targets”
On the impact of some of the measures envisaged for the IRS, namely with the updating of the scales, the minister explains why many families with lower incomes will not see a difference in deductions: “The IRS in Portugal has a scope that does not reaches the 50% of Portuguese with the lowest income”.
This means that “half of the Portuguese do not declare IRS and, therefore, this reduction would not reach these families”, he adds, repeating that “the State fully returned all the excess tax revenue, which it received in taxes”, in a total of 8,800 million euros.
Regarding the policy oriented around the reduction of the public debt and the deficit, Medina guarantees that these two primary objectives remain untouched and that the Government will not seek to go beyond them at a time when interest rates are rising and that, therefore, increases the State debt exposure.
“We will have to pay in 2023 an additional 1,400 million euros in interest compared to what we paid in 2022. The amount of the debt cannot leave us calm yet”.
Regarding the “budgetary brilliance”, which he promised at the beginning of his term not to try to do, Medina guarantees that the difference between the predicted deficit, of 1.9%, and the registered deficit of 0.4% is not due to “the stupidity of the State ”.
“Throughout 2022 we publicly assumed two things: that we were not going to seek to have budget sparklers and that we would return to the Portuguese all that came from additional revenue”, right away due to the inflationary context, recalls the official.
“With this last package of measures with a value of 1,600 million, which add to the previous 900 million, the account [do défice] hits right. We distributed to the Portuguese everything that the State received in excess and we went further”, he guarantees, “we refunded the increase in IRS, IRC and other contributions”.
“Everything that resulted from the strength of the economy”, he clarifies, allowed that more than promised was distributed, even if this means a stagnation of investment in State services, namely in the SNS, in Education or in Defence. As for the SNS, Medina retracts and argues that all the overdue debt has been paid – which does not translate into new investment.
As for the delay in the application of measures such as those that were known, the minister explains that “we only distributed after we were sure that we had the revenue”. “We don’t distribute what we don’t have”, he safeguards.
“This is a balance”, he says again in the interview given to the public station: “The country has a very high debt at a time of great external instability. We have to take care of having a lower debt, but at the same time what I would answer to the opposition parties is: demonstrate that we do not distribute all the revenue that the State had and, by the way, demonstrate that Portugal was not the fourth country that distributed more support”, among the 27 Member States.
News updated at 01:01 am