IMF Urgesโข Portugal to Offset Tax Cuts with Spending โefficiency & Reform
The International Monetary Fund (IMF) is advising Portugal to proactively address the budgetary impact of recent personal (IRS) and corporate โฃ(IRC) tax reductions โคto maintain fiscal balance,notably looking ahead toโ 2026. In a statement toโข Lusa โagency,the IMFโ emphasized the need for offsetting measures to counteract the lasting effect of โฃthese โฃtax cuts on Portugal’s budget.
The IMF recommends aโ three-pronged approach: reducing tax exemptions, improving the efficiency of โpublic spending,โ and addressing budgetary pressures stemming from Portugal’s aging population. While acknowledging Portugal’s “remarkable” economic performance โas the pandemic – including growth exceeding the โEurozone average andโค a meaningful reductionโ in public โคdebt โ(around 45% of GDP) – the IMF stressesโค the importance of preserving โfiscal stability.
Current IMF projections โฃanticipate a 0.2% GDP surplus this yearโข and a balanced budget in 2024,figures slightly more conservative than the Portuguese government’s forecasts. The IMFโข previously projected a โค0.1% surplus for 2026, โa view diverging from moast economic institutions โฃpredicting a deficit for that year.
Beyond balancing the budget,the IMF suggests reforms to foster sustainable growth. These include eliminating disincentivesโ to business expansion -โ specifically referencing the progressive corporate income tax – improving access to financing, addressing labor market โขduality, enhancing educational outcomes, and streamlining bureaucracy.
The IMF also highlighted Portugal’s triumphant โฃimplementation of the recovery andโ resilience plan (PRR), noting a disbursement rate of funds exceeding the EU average, with 40% of the โฌ22.2 billion plan already executed.
This advice comes as the IMF releases a broader report warning of potentialโค debt increases across Europe if current spending priorities continue without policy adjustments. The report suggests a combination of structural reforms (approximately one-third of the necessaryโฃ effort) โฃand budgetary consolidation (two-thirds) will be crucial to โขavoidโ rising โinterest โrates and maintain economic confidence.