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Portuguese Parliament Waves Through Budget Amendment

Portugal's National Assembly has adopted the Government's proposed amendment to the 2013 State Budget, containing a raft of initiatives, designed to enable the country to meet its fiscal objectives as defined in the Budget Strategy Document.

While failing to provide specific details of its proposed savings plan, the Government nevertheless insisted that most of the initiatives are intended to reduce structural spending, rather than to raise taxes in Portugal. The package reportedly includes plans to extend working times for officials from 35 to 40 hours a week, to cut around 30,000 public sector jobs in Portugal, and to increase the general retirement age from 65 currently to 66.

The Government confirmed that the proposed amendment to the State Budget also contains measures aimed at encouraging investment and boosting the recovery of economic activity in Portugal. The text provides notably for the introduction of an 'extraordinary investment tax credit,' which corresponds to a corporate tax reduction (IRC) of 20 percent of the investment, up to a maximum 70 percent of total IRC due.

The Government last month explained that the incentive will serve to reduce the effective corporate tax rate to 7.5 percent for those companies that elect to invest significantly in 2013. Already approved by the European Union, the provision will apply to investments realized between June 1, 2013, and December 31, 2013, up to EUR5m (USD6.5m).

Defending its decision to introduce the State Budget amendment, the Government emphasized that this was due both to the Constitutional Court's decision to reject some of the austerity measures contained in the initial 2013 Budget, as well as to a deterioration of the macroeconomic situation in Portugal, and resulting shortfall in fiscal revenues.

Back in April, Portugal's Constitutional Court censured plans to remove the 14th month of salaries for civil servants and pensioners, and blocked plans to introduce a levy on unemployment and sickness benefit. The Court's decision resulted in a budget shortfall of around EUR1.25bn. The latest savings package aims to plug this gap.

The Portuguese Government aims to reduce the deficit to 5.5 percent of gross domestic product in 2013, and to subsequently 4 percent in 2014, to 2.5 percent in 2015 and to finally 1.2 percent in 2016.

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