Corporation tax as an investment stimulus

The Portuguese Government is putting forward a reduction in the corporate tax rate as an urgent and necessary economic stimulus. Once again they are way off the mark.

What they are looking for is international investment, so Portugal needs to be competitive on a fiscal level, even if not when it comes to productivity. Once again, this is a public relations exercise. One big investor may bring 1,000 jobs, only to close and move on to the next cheapest country that appears, but brings a huge amount of short-term benefit to the Government.

The biggest taxpayers in Portugal are the fat cats, quoted companies, some with serious managers, mostly backed by ex-politicians and their cronies. Bringing the corporation tax rate down will principally benefit these companies, their shareholders and management.

However, the politicians are forgetting (again) the small and medium-sized companies that employ the vast majority of workers. The tax and burocratic burden on those companies is huge, with Social Security, monthly, quarterly and annual reporting requirements that continue to multiply. These companies actually pay very little corporation tax due to the difficulties of even breaking even in the current economic climate, so there is no benefit to them from reducing the tax rate.

In fact the small and medium companies pay tax regardless of their profitability. Firstly there is the legalised robbery of the Special Payment on Account that must be paid regardless of profitability and cannot be set off against the company's tax charge except if the company makes significant profits. So why call it "payment on account"? Secondly, the companies must pay tax on their motor expenses and other disguised staff costs, a charge that is doubled if the company is loss-making. This reflects the tax authorities total incapability to make sure that these benefits are taxed in the hands of the employee, which is foreseen under the tax law but never happens.

So how to stimulate the economy using corporate taxation measures? Reduce the punitive taxation on small and medium companies. Inspect companies that have the highest disguised staff costs and oblige them to declare the benefits properly, thus raising income from personal taxation. This will benefit companies across the board while only affecting the tax paid by higher earners (another politically correct move).

I'm available to join the inspection team!

No Confidence in Portuguese Politicians

Yesterday the opposition Socialist party's motion of no confidence in the right wing PSD/CDS government was predictably voted down by the majority coalition but not before causing a run on the stock market.

The only thing this fiasco proved was that, once again, the politicians are idiots who are more interested in posturing and pandering to the mass media than in trying to run the country. And the biggest idiot on the stage at the moment is José António Seguro (whose surname ironically translates as safe or insurance), the leader of the opposition. He is a caretaker leader for a period when the Socialist party had no hope of even influencing policy but now puts himself forward as candidate for Prime Minister! That's more frightening to me than the terms of the Troika loan.

He was steamrolled into the vote of no confidence by the media, while realising that he has to play to the creditors who are withholding stage payments on the international funding in view of the political turmoil and disastrous financial performance. And I won't even start on assessing their performance because I am not an expert in macroeconomics, though it seems to me obvious that their cuts could have been expected to cause the sharp recession and severe reduction in tax receipts that has been seen in the first two months of the year.

So here we are, suffering from the excesses of the past, stuck with a bunch of idiots as leaders whose long-term plan is to get away with a nice job or pension at the end of their second term but with nobody better to replace them that I can see. That's politics I suppose...

But one deficit reduction proposal could come out of this: Those parties or members of parliament who are found to be wasting time rather than producing something constructive should have their pay docked! Or would the process of proposing and voting that through also be considered a waste of time?