Yesterday, for the first time in 45 years, the Portuguese government unveiled its draft 2020 budget that will show a fiscal surplus. Although the surplus is just 0.2% of gross domestic product, it does mean that Portugal is in a very small group of countries running a surplus (for 2020 at least). The surplus will help bring down Portugal’s huge debt burden to just over 116% of GDP, down from nearly 119% this year, one of the highest debt-to-GDP ratios in Europe. At its peak earlier this decade, Portugal’s debt was over 130%, however, since then strong growth, along with spending controls has reinvigorated the economy. The economy is expected to grow nearly 2% next year, almost double what the ECB predicts for the rest of the EU. As Mario Centeno, the Portuguese Finance Minister, told reporters ‘Growing, consolidating public accounts and reducing debt is very rare worldwide’.
The government hopes to consolidate the growth trend with tax cuts on small and medium-sized businesses as well as a modest easing of income tax on the middle classes. However, it’s not all good news. A number of indirect taxes will rise, including gambling, cigarettes and tobacco as well as sugary drinks. But the big increase has been reserved for the lovers of bullfighting. VAT on tickets for bullfighting events will increase nearly fourfold, from 6% at the moment to nearly 23%!! (What would Ernest Hemingway think? He famously once said ‘There are only three sports: bullfighting, motor racing, and mountaineering; all the rest are merely games’).
Interestingly, the Portuguese government has also been very forward-thinking with other taxes, as people thinking of retiring to Portugal could also potentially receive foreign income such as UK pensions tax-free for ten years under a special scheme. In 2009, the Portuguese government offered new residents the opportunity to enjoy a decade of generous tax breaks through the special non-habitual residence (NHR) tax regime. Introduced to attract ‘high value’ industries and individuals, NHR is effectively a tax holiday for your first ten years living in the country. Crucially, the NHR regime can also be highly beneficial for retirees, high net worth individuals and other expatriates, as it offers the opportunity to receive foreign income – including pensions – completely tax-free.