Legislative elections in Portugal

Parties’ proposals on economy and private sector

Portugal will hold general elections on January 30th, after the dissolution of parliament in December by the President of the Republic. The current prime minister, António Costa, is running for a third mandate advocating more income to families and the stimulation of consumption, presenting the essence of the state budget for 2022 that was rejected by the Parliament and led to the political crisis. His main opponent, the social-democrat Rui Rio, promises greater tax relief for companies over the next four years. PS starts the official campaign slightly ahead of PSD in the polls (a difference between 9%-10% according to this weekend’s survey) as the most likely winner, though it must be highlighted that polls have failed compared to results in recent elections and the real distance should be shorter according to our analysis through informal contacts. However, the scenario of a wide majority in parliament is unlikely for any of the main parties, which means that whoever wins the elections will need to negotiate for a stable government solution.

The main argument of the current Prime Minister, António Costa, is that after losing the support of the parties on the left – PCP, BE and PEV – at a moment of such importance for the country, only a PS Government with an absolute majority can offer the country a stable solution. Costa signals that there has been robust economic growth during his governance and commits to a continued sustainable growth of the economy: an annual average level of growth rate at least 0.5 p.p. above the EU27 average of the EU27 average and 1 p.p. of the euro zone average and to reduce debt to below 110% of GDP. The goal for the debt reduction is shared by the social-democrats, though Rui Rio goes further on economic growth and guarantees annual economic growth of over 3% by the end of the legislature.

PS and PSD differ on the strategy for achieving these macroeconomic goals. The Socialists want to increase the minimum wage and implement tax relief on personal income tax (IRS). Regarding companies, the socialists propose the end to the “special payment on account” and a 25% deduction from taxable income for investment expenses, as well as a more favourable taxation regime for start-ups. The Social Democrats also plan to lower the personal income tax (IRS), while mainly advocating a gradual reduction of the corporate income tax (IRC) from 21% to 17%. Below the main proposals of these two parties in different sectors.
Despite the differences, both agree on valuing and implementing EU funding like the Recovery and Resilience Plan (PRR) and Portugal 2020.

CORPORATE TAXES:

PS

• Complete the tax reduction reform for SMEs by ending definitively ending the Special Payment on Account
• Continue to strengthen the ability to deduct corporate income tax (IRC) from the profits of companies that invest in the economy
• Establishing a favourable taxation regime for start-ups
• Proposing adjustments to the IRC structure that favour good corporate tax practices

PSD

• Reduce corporate income tax (IRC) from 21% to 17% (2 p.p. in 2023 and 2 p.p. in 2024); extend it also to small and medium companies, increasing the 25.000€ limit to 100.000€ to companies in the countryside
• Revise substantially IRC by simplifying and introducing fiscal competitiveness measures
• Temporarily reduce (between July 2022 and December 2023) the VAT on restaurants
• Strengthen green taxation, with a budget-neutral impact, using the revenue to further reduce income taxesSimplify and improve tax litigation.

COMPETITIVENESS AND INTERNATIONALISATION:

PS

• Modernise the incentives for foreign investment, in particular those of a fiscal nature
• Support and encourage the capitalisation of the business sector, furthering initiatives for the concentration/merger of companies
• Support investment in innovation, optimising national resources to finance business innovation, strengthening the Portuguese Development Bank
• Continue to promote taxation that encourages investment in productive modernisation, R&D and international attractiveness, namely through the Patent Box regime and by strengthening the SIFIDE
• Create a fiscal framework that favours company economies of scale and business succession and an appropriate fiscal framework for start-ups
• Continue the process of implementing a national network of Digital Innovation Hubs
• Simplify funding for digital, placing new ambition on Portugal’s participation in the Digital Europe Programme, which will mobilise €9.2 billion to support the development of advanced digital skills
• Encourage entrepreneurship, initiating a new cycle of the National Entrepreneurship Strategy for the triennium 2022-2024
• Eliminating or simplifying bureaucratic processes that currently hinder economic activity, reducing the context and transaction costs that companies have for setting up inland.

PSD

• Reducing context costs and bureaucracy and improving economic and fiscal justice
• Reinforcing the role of the Development Bank in the capitalisation and internationalisation of companies
• Programme for attracting large industrial projects
• Programme to support mergers and acquisitions of companies
• Quickly implement the checking account between the Tax Authority and taxpayers and move towards a checking account between the Central Administration and businesses Innovation and knowledge
• Raising investment through the reformulation of the SIFIDE
• Internationalisation support programme via European funds

CIRCULAR ECONOMY:

PS

• Provide incentives for the creation of national circular economy hubs, supported by national or European funds
• Evolve waste management to resource management, continuing work on the classification of by-products
• Continue to support municipalities in setting up collection and disposal networks;

PSD

• Reform the functioning of the waste sector and correct the widespread failure to meet targets
• Separate regulatory activities from regulation
• Give special attention to eco-innovation throughout the value chain, involving businesses in defining the final destination of currently unplaced waste.

ENERGY AND ENVIRONMENT:

PS

• Decarbonisation of the economy, through the implementation of the National Energy and Climate Plan 2030 and the Roadmap for Carbon Neutrality 2050
• Implement the investments of 715 million Euros foreseen in the PRR in the scope of the decarbonisation of industry
• Implement the investments of 185 million Euros foreseen in the PRR within the scope of hydrogen and renewable gases, including the creation of a network of hydrogen filling stations
• Launch the hydrogen auctions already presented, mobilising up to €50 Million per year of existing CO2 revenues to support the decarbonisation of industry and the heavy passenger and freight transport sector
• Adopt a green taxation in line with the goal of fair transition with a progressive shift of the tax burden from labour to pollution and resource intensive, pursuing the removal of environmentally harmful tax exemptions and benefits,

PSD

• “Green” Constitutional Review Process.
• Invest in the management of water and water resources, soil and the recovery of environmental liabilities
• FOZ Programme – Creation of a programme for the restoration and revitalisation of estuary zones aimed at integrated interventions for climate change adaptation, urban regeneration, sustainable mobility and territorial enhancement
• PACTE – Programme for Climate Action, Energy Transition and Eco-innovation – a new framework of measures and incentives aimed at business agents for the development of innovative projects in line with the objectives of climate action, sustainability and taking advantage of opportunities to create new products and services
• Complete the process of awarding concessions for operating distribution networks as well as strengthening investment in distribution infrastructure
• Promote the added value of the energy industry

TOURISM:

PS

• The “Reactivate Tourism | Building the Future Plan” will be implemented, which is underpinned by four strategic pillars: Supporting Businesses’, ‘Fostering Security’, ‘Generating Business’ and ‘Building the Future’, with a view to placing Portuguese companies in this sector at a higher level of value creation.

PSD

• Develop the interior with diversified tourism as well as the growth of medium-sized towns
• Create conditions for the reduction of seasonality in the Algarve
• Make legislation more flexible and reduce bureaucracy in the sector, as well as the elaboration of a new «Tourism Basis Law» and a Tourism Management Plan
• Within the scope of the Development Bank, activate a financial support framework for companies
• Make the construction of the new airport in the Lisbon area, by 2025, a national priority

IMMIGRATION:

PS

• Implement SEF’s (foreign and border service) reform with a clear organic separation between police functions and the administrative functions of authorising and documenting immigrants, which must be ensured by the registry and notary services and by sectorial public services
• Simplify and shorten the procedures for obtaining and renewing residence permits in Portugal, namely by reducing the complexity of the existing procedures, evolving into a one-stop shop.

PSD

• Recover SEF as a security force, repealing the law extinguishing it.

Political Scenarios

PS wins without majority: António Costa admits to form a minority government, negotiating diploma by diploma in Parliament, as former prime minister António Guterres did. He also considers the possibility of governing in coalition with the PAN, should PS come close to an absolute majority and the number of PAN deputies be sufficient. The dialogue with the former left-wing partners PCP, BE and PEV is unlikely, given the recent disagreement with these parties and António Costa’s latest statements. If all scenarios fail, Rui Rio has already guaranteed that he is willing to negotiate to enable a PS government, a hypothesis so far rejected by Costa.

PSD wins without majority: the PSD leader has already said that he will negotiate with his traditional partner, CDS (Christian Democrats), but also with the Liberal Initiative (IL). Despite having a parliamentary incidence agreement with Chega (far-right party) in the Azores regional government, Rui Rio has already ruled out a possible negotiation with this party for the national parliament.

Prospective Ministers | Profiles

As the political campaign unfolds, two names have been indicated in the media as possible Ministers of the upcoming government:

PS | Fernando Medina. Former Mayor in Lisbon. Economist with a political profile, being one of the top leaders of PS and close to António Costa. He was the successor of António Costa at Lisbon municipality after being his vice-president for two years. He ruled from 2015 to 2021, when he suffered an unexpected defeat for the social-democrat candidate Carlos Moedas. Medina has been economic advisor to former Prime Minister António Guterres, Secretary of State for Employment during José Sócrates’s government and then Secretary of State for the Economy with the Minister Vieira da Silva. According to the press Fernando Medina is appointed as the next Minister of Finance in a PS government.

PSD | Joaquim Miranda Sarmento. A low-profile academic in Finance who has gained prominence in PSD under Rui Rio presidency. Rio used to call him the “Centeno” of PSD in a reference to the former socialist Finance Minister. He was the party’s spokesperson for Public Finances, the national representative for PSD’s 2019 campaign and the responsible for this year’s electoral programme. He is currently the president of the National Strategic Council (CEN), the consultative body of the PSD’s leadership members. Sarmento is running to the elections in an elective position for the circle of Lisbon.