Portuguese prime minister outlines plan to tackle rising cost of living, keeps VAT unchanged

Luís Montenegro says the current situation may drag on for some time, but unlike other European countries he will not cut VAT on consumption. "Here I am, putting myself on the line", said the Portuguese prime minister, Luís Montenegro, in an address to the nation on Thursday night. Timed to coincide with the main evening news bulletins, the speech was used to set out the measures to tackle the cost of living, particularly those triggered by the increase in fuel prices. Some decisions in the plan were already known. This was the case for the pension bonus and the reduction in personal income tax (IRS) bands, announced last week in Parliament, when the government survived a motion of no confidence. But they have now been formally approved by the Council of Ministers. Montenegro set out how the pension bonus will be applied: 200 euros for pensions of up to 537 euros; 150 euros for pensions up to 1,704 euros, and 100 euros for pensions up to 1,611 euros. The payment will be made in December. The Council of Ministers also approved a cut across six IRS bands, with the remaining bands also affected because of the progressive nature of the tax. A measure which, according to Montenegro, is aimed above all at "middle-class households". At the same time, the government portal published the table of IRS deductions, with simulations (source in Portuguese). But this is still only a draft law, which must be approved by the Assembly of the Republic. On fuel prices, the main strategy will continue to be a discount on the tax on petroleum products (ISP). Montenegro says the discount will remain in place until the end of the year, amounting to a total reduction of around 1.3 billion euros. The prime minister also said that this discount "will probably rise to 25 cents as early as next week", from the current 23 cents, in anticipation of further increases in fuel prices. The government will also once again support the sectors most exposed to rising fuel prices, with a total budget of 38 million euros. This support covers taxis, freight transport companies, social solidarity institutions, firefighters' associations and farmers. The solidarity gas bottle scheme will also remain in place. As part of this package, the government is extending the green rail pass to the urban areas of Lisbon and Porto. The pass, costing 20 euros a month, allows travel on all railway lines except the Alfa Pendular. Government keeps VAT unchanged The address was also used by Luís Montenegro to spell out what he will not do: tamper with the consumption tax, VAT. "I will not swap cutting VAT on some foodstuffs from 6% to zero for the 800 million euros we are returning to families through IRS and the pension supplement", the Portuguese prime minister said. The measure has been demanded by the Socialist Party (centre-left PS) and by Chega (far right). This has also been the strategy adopted by several European countries to tackle the rising cost of living. "I have every respect for the choices of the opposition and for the choices of my fellow heads of government in the European Union", Montenegro said. "I will not trade our fiscal and financial policy for that of other countries, even those closest to us, such as Spain, France or Italy". The Spanish case is particularly relevant for Portugal. Fuel is cheaper in Spain, prompting consumers in Portugal to cross the border to fill up. To defend these choices, Montenegro repeatedly referred to the past during his address to the nation, a reference to the international bailout programme the country was subjected to. "Do not count on me, or on the government, for illusions today that will carry a heavy price to be paid tomorrow", he said. Luís Montenegro also made it clear that "the situation may drag on". In the morning, at a conference, he had criticised the "stupid" course of the conflict in the Middle East.