Budget: with these proposals and counter-proposals, do you still know what the Government proposes for 2025? An updated version of the state of affairs
The Government will deliver the proposed State Budget for 2025 (OE2025) by next Thursday, which starts with additional expenditure already approved in parliament and still has uncertain approval.
The Government does not have a majority, so it will need to negotiate OE2025 with other parties, who presented proposals in bilateral meetings for what they consider the best way to take advantage of the budgetary margin that exists, and the executive’s ‘flags’ that have been at the center of the discussion are the IRS Jovem and the decline of the IRC.
Here is what is already known about the OE2025 proposal:
Budget continues with 5.7 billion in additional expenditure
Negotiations immediately began with an expenditure of 5.7 billion euros, including measures already taken, new Government initiatives and proposals approved in parliament.
The opposition measures approved in parliament are worth 740 million euros, more than half of which corresponds to the IRS reduction which, despite coming from a Government initiative, was the PS proposal that was approved. The value also includes the extension of 6% VAT on electricity, with an impact of 110 million, and the exemption on ex-Scut, with a cost of 180 million.
The Government’s measures have an impact of 452 million euros, including recovery agreements with teachers, security forces and the military, an increase in the Solidarity Supplement for the Elderly and an increase in IRS allocation.
Government expects growth of 2% and surplus of 0.3%
The Government estimates that the economy will grow by 2% this year and in 2025, according to data that were transmitted to the parties by the executive in meetings about OE2025, to which Lusa had access, and which place inflation at a value slightly above 2%.
In these meetings, the data pointed to a budget surplus of 0.3% in 2024. For next year, the Government plans to reach a surplus of 0.3% of GDP in 2025, which corresponds to around 700 million euros .
Pedro Nuno Santos
ANTÓNIO PEDRO SANTOS
In the document that was delivered by the Prime Minister to the Secretary General of the PS this Thursday, the Government indicates that, taking into account the outlook for the balance, “the total budgetary margin, for discretionary choices in OE2025, is around 2,252 million euros”, of which 1,060 million remain (after the measures approved in parliament and the measures already determined by the Government).
Government will update taxes and extend extraordinary contributions
OE2025 will include “updating tax brackets, IRS, IMT and special taxes on consumption”, as announced by the Minister of Finance. Furthermore, it also provides for the extension of extraordinary contributions, such as energy, banking, pharmaceuticals, among others.
Minimum wage increases to 870 euros
In the income agreement signed with the social partners, the executive determined an increase in the minimum wage of 50 euros, above that foreseen in the previous agreement, to 870 euros.
Although the minimum wage is not determined in the State Budget, it will also have an impact on next year’s public accounts, as it will also have to be applied to the Public Service, where it is normally slightly higher (in 2024, the minimum wage was defined at 820 euros and the minimum wage in the Public Service at 821.83 euros).
Red lines
The Government reformulated its proposal for the IRS Jovem, giving up the model that included tax rates reduced to a third compared to those paid by most taxpayers, moving towards a model that follows the logic of what already exists – which exempts from being subject to the IRS a portion of the income.
This evolution allowed the PS to drop one of the red lines it drew to let OE2025 pass, but there are still details that separate the Government’s solution from that defended by the largest opposition party.
Another of the red lines drawn by the PS has to do with a transversal drop in the IRC rate.
IRS Jovem
The model defended by the Government extends the IRS youth in several directions: it allows the benefit to be applied to all young people regardless of academic qualifications, aged up to 35 years, and can be enjoyed for 13 years. It also increases the annual income limit subject to exemption.
Jose Fonseca Fernandes
Thus, workers (employed or self-employed) benefit from a discount on the IRS that consists of an exemption on 100% of income, with a limit of 55 Social Support Indexes (IAS) in the first year.
From the 2nd to the 5th year, the exemption applies to 75% of income; from the 6th to the 9th year the exemption is 50% and from the 10th to the 13th year the exemption is 25%. Throughout this period, the income limit that can benefit from the exemption remains at 55 IAS (around 28 thousand euros taxable annually).
In the model currently in force, the young IRS includes an exemption of 100% of income, up to a maximum amount of 40 times the IAS in the first year of the measure.
In the second year, the exemption covers 75% of income, in the third and fourth years it is 50%, and 25% in the fifth and final benefit – with the reduction in exemption being accompanied by a reduction in the maximum annual income limit .
The benefit is limited to 30 years of age, for those with a doctorate, and is also limited to young people who have just completed their cycle of studies (secondary or higher), but in its electoral program the PS promised to extend it “to all young people” regardless of their level of education.
On Friday night, the socialist leader, Pedro Nuno Santos, presented the party’s counter-proposal, saying he was available to accept the Government’s proposal for IRS Jovem, but demanding a reduction in benefits from 13 to seven years.
Reduction in the IRC rate
Instead of moving forward with a reduction in the IRC from 21% to 19% in 2025, the Government now proposes that the tax levied on companies’ profits falls by one percentage point next year, to 20%. And, by 2027, the rate drops to 17% instead of the 15% previously defended by the Government.
The IRC is the matter on which there is the greatest divergence between the Government and the PS, warning Pedro Nuno Santos that a reduction to 17% will never have the support of the party.
To overcome this impasse, the PS comes up with two alternatives.
“The first is that there will be no reduction in IRC in 2025 and that this non-reduction of one percentage point will be replaced by the reintroduction of the extraordinary tax credit for investment”, said Pedro Nuno Santos on Friday night.
The other alternative is, according to Pedro Nuno Santos, “the PS makes it possible to reduce the IRC by one percentage point in 2025 with the commitment that in the following three years there will be no additional reductions in the nominal IRC rate, which can be replaced by the reintroduction of the extraordinary tax credit to support investment in 2026, 2027 and 2028”.
Autonomous taxes and salary premium
In line with what the PS advocates and its own program, the Government ensures an annual reduction in autonomous taxation on vehicles, in terms of IRC and IRS, for the next four years, reaching a reduction of 20% in 2028.
The Government also decided to accept the PS’s proposal to reinforce the incentive for salary appreciation, through an increase, in terms of IRC, of 50% of the charges corresponding to salary increases of at least 4.7%.
These two measures are included in the tripartite social consultation agreement signed last week – and to which the CGTP was not bound.
Government admits extra increase in pensions
The Government has already come forward with a bonus for pensioners this month, but in the counter-proposal delivered to the PS this week, it also says it is available to “grant, whenever possible, to pensioners with lower pensions, extraordinary reinforcements above the value of the legal update” .
