More potential GDP, less taxes and less bureaucracy: Can the government do it? We hope so – Opinion – SAPO.pt

The Minister of Finance recently announced that he wants Portugal’s potential GDP to grow in the medium term, from the current 2% to around 3%. This target would allow Portugal to reach an interesting level of growth. But the question remains: Can the government achieve this aspiration? To this end, are you committed to reducing taxes and bureaucracy?

The executive branch’s plans include simplifying the tax system and reducing the tax burden on households and companies. On the labor market, the government aims to make hiring more flexible and give employers greater adaptability at any given moment. At the same time, this process does not mean making it easier to fire people. The balance to be achieved makes this reform extremely complex.

In the judicial system, the government intends to speed up processes and reduce costs for companies. However, there is still a long way to go from theory to practice. Portugal’s bureaucracy is systemic. The public administration system is clearly resistant to change.

On the financial front, the government is also ambitious: it predicts that by the end of the decade public debt will be close to 70% of GDP. It is currently close to 100%. Achieving this target depends largely on improving national productivity. Raising productivity is a difficult challenge. Portugal ranks fifth in the EU ranking of the least productive countries, ahead of only Poland, Latvia, Greece and Bulgaria. The economy minister stressed the need for a “productivity shock”.

The government said the “productivity shock” depended on factors such as fiscal relief, incentives for capital-intensive activities, foreign direct investment, technological innovation, talent and effective leadership, and competitiveness of environmental costs.

The background costs borne by companies are caused first of all by the excessive bureaucracy that affects the Portuguese public administration. Bureaucracy remains one of the biggest obstacles to the country’s economic development. The PRR Monitoring Report clearly highlights the harms of bureaucracy. The OECD also emphasizes the urgent need to fight bureaucracy and improve the efficiency of the Portuguese judicial system in order to attract more foreign direct investment.

In order to retain and attract “talent”, it is necessary to increase net wages. To achieve this, it is essential to reduce the tax burden on labor income. In Portugal, wages are so low that the government has just recognized the possibility of accumulating unemployment benefits and work income to overcome the situation where unemployment is more economically beneficial than working!

According to the Instituto mais Liberdade, by 2022 Portugal was the fourth country among the 27 EU countries where household economies would be most damaged by state taxation.

Therefore, focusing on net household income would not only stimulate productivity, but also help prevent qualified young people from fleeing the country. According to the Francisco Manuel dos Santos Foundation, 200,000 graduates have emigrated in the past decade. This number is expected to repeat in the next decade, causing irreparable damage to the country. The OECD says that Portugal spends about 100,000 euros per graduate.

Indeed, the government seems to have a very clear understanding of the structural problems that are holding back the country’s development. The question that follows is: can the measures it proposes be successfully implemented? Or will they be doomed to succumb to the weight of bureaucracy, administrative inertia, an absolutely divided party political environment and a complete lack of commitment among the legislature? We will have to wait and see.