Portugal’s PR approved today the State Budget proposal presented by the Government for 2013. The adjustment will, not surprisingly, continue to be pursued by collecting an additional revenue of 4,3 billion € on taxes.
This additional revenue will be created by increased income taxes. This year the Value Added Tax on goods and services, which represents about 36% of the whole fiscal revenue, will remain stable, mostly because the increases verified in both 2010 and 2011 did not lead to any additional returns. In fact, the revenues derving from VAT are today lower than they were in 2007 or 2008 and tend to shrink even further with prospects of anemic economic activity.
In this sense, the option for the increase of income taxes can be explained with their greater degree of imunity to the effects described by the Laffer’s curve, a graphic representation that sugests the existence of an inverted U shaped relationship between tax rates and tax revenues.
A number of other tax increases will contibute to cut further on households’ available income for the year to come, despite the alerts coming from all different sources about the importance of counter-cyclical policies and, more generaly, of economic growth. There’s no doubts that the absense of economic growth in recent years, notably in the last decade, is the main catalyst for the whole crisis, yet very little is being done to put the Portuguese economy on the growth path again.
This budget targets, as its predecessor did, the effects and not the causes of the crisis. Not only will it cause great pain among Portuguese families as it will prove to be insufficient to achieve its own goals. Probably the greatest danger of this budget is the unrealistic macro scenario supporting it, far more optimistic than anyone but government officials is expecting.
The biggest problem of the Portuguese economy has been, for several years, on the supply side and, until production is back on track, very little can be done about the economy aside, as the budget proposal shows very clearly, housekeeping measures.
Appart from it, the sacrifices demanded from the families are unethical and raise old questions about democracy and the legitimacy of today formal politics. First of all, we don’t know who the hell is governing this country but we are very sure that they are not the people we appointed, very democratically, to do so.
Finally, the whole deterministic concept of “hey fellow citizens we all have to do this, whether we want it or not, because there is no choice” is anti-democratic, anti-humanistic and reveals, if not other things, a deep lack of ideas, courage and pragmatism.