Constitutional Court Decision Derails Portugal Budget Plan

April 8, 2013 Taxation in Portugal

2 eurLISBON – Following a recent decision of the Constitutional Court, Portugal is once again scrambling to find new sources of revenues, but tax hikes have already been ruled out by the Prime Minister.

In a televised broadcast aired on March 7th the Prime Minister of Portugal Pedro Passos Coelho announced that the government will now look at further reducing the public funding granted to education and health programs in the country, following a decision by the Constitutional Court which ruled that several parts of the government’s proposed revenue saving plan couldn’t not be allowed to go forward.

Late last week the Constitutional Court of Portugal rejected four (worth EUR 1.3 billion) out the nine (cumulative expected to bring in an extra EUR 5 billion) austerity measures which the government intended to implement in the next national budget.

The decision of the Constitutional Court banned the implementation of proposed cuts to the holiday bonuses provided to pensioners, slashes to the holiday payments to employees of the public sector, reductions in the payments provided to sickness beneficiaries, and significant lowering of the payments for the unemployment benefits.

However, the Constitutional Court did agree to allow the government to instate a planned reshuffle of the country’s income tax brackets, a move which is still expected to raised EUR 2 billion in extra taxes per year.

The Prime Minister stated that the decision of the Constitutional Court will not force government to hikes taxes, and he further explained that the extra funds will need to come from “reductions in functional spending to offset what the court ruling prohibited.”

Describing the plight of the country, the Prime Minister labelled Portugal’s current situation as an “emergency” and said “…after this decision by the Constitutional Court, it’s not just the government’s life that will become more difficult, it is the life of the Portuguese that will become more difficult and make the success of our national economic recovery more problematic.”

Photo by luipermom

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