By INÊS LOPES ines.lopes@theresidentgroup.com
New Year’s Day may have been celebrated with fireworks and champagne across the country but it only served to soften the blow of a series of austerity measures implemented by the Portuguese government for 2011 to help reduce the country’s deficit.
A maximum VAT rate increase, soaring unemployment, pay freezes or cuts as companies struggle to cope, rising fuel, electricity and transport prices and more expensive shopping trips are what people in Portugal can expect this year as belts are tightened even further.
With the standard VAT rate rising by two percentage points, from 21% to 23%, the majority of businesses in Portugal have had to pass on the tax increase to consumers by hiking the price of products and services after an already difficult 2010 in terms of sales.
Larger supermarket chains, in the face of tough competition, have had to come up with creative advertising campaigns to lure consumers into their stores.
As businesses have to intensify cost-cutting efforts this year to avoid falling into insolvency, it is feared more jobs will be lost.
Painting a bleak picture for Portugal, the International Monetary Fund (IMF) predicts unemployment to be just below the 11% mark in 2011, in line with the 10.9% announced by the National Statistics Institute at the end of 2010. Around the same time last year, unemployment stood at 9.8%.
More than 600,000 people are currently registered at job centres across Portugal, the highest number in the last 30 years, and the prospect of finding new jobs is becoming increasingly more difficult.
In 2010, nearly 4,000 companies declared themselves bankrupt, 305 more than in 2009 and 1,188 more than in 2008. The building and property sectors have been the most affected, followed by the retail industry.
In a bid to keep consumer confidence high, retail businesses in Portugal have been forced to run year round promotions and come together regularly to host stock out fairs selling products at discounted prices.
Supermarket chains, such as Pingo Doce, have either announced that they would not be passing on the VAT increase to the consumer or regularly advertise major discounts and promotions on selected product ranges.
Despite this, consumers can expect to pay more for less shopping bags, a trend they had become familiar with in the last year.
Essential food items will remain at the lower 6% VAT rate but bread will suffer an increase of 12% due to the price of wheat which has rocketed in the last year.
Bakers in Portugal say they are left with no choice as the price of flour has increased by 40%, which will ultimately be passed on to consumers purchasing flour-related products.
All goods deemed non-essential, such as cooking oils, soft drinks, some canned foodstuffs, snack food and cleaning and hygiene products, which were charged at the standard VAT rate of 21%, are now 2% more expensive.
Driving in Portugal has also become more expensive at different levels. On December 31, drivers across the country patiently queued at petrol stations to fill their tanks before being hit by inflated fuel prices in 2011 while others closer to the border opted to pay Spanish prices.
For example, on January 1, the price of petrol per litre at a Galp station in Ayamonte, Spain, was 27 cents cheaper than at its Portuguese counterpart in Vila Real de Santo António, €1.244 against €1.513 respectively.
Drivers in the Algarve can also expect to pay €0.30 more to take the A2 motorway to Lisbon, totalling €18.95, as toll charges have increased by 2.3% in line with inflation.
Meanwhile, following the November 24 General Strike in Portugal, unions representing public sector employees have threatened to strike again as proposed salary freezes and cuts have hit those earning €1,500 or more a month with a reduction in their pay of between 3.5% and 10%.
In the health sector, the government has also announced reductions in overtime pay for doctors and nurses from January 1, while those on unemployment benefit and pensioners earning more than €485 (the national minimum wage) are now expected to pay public hospital fees, which have increased by 10 cents.
Other rises:
– Mobile phone charges will rise by 2.2%
– Electricity bills will cost an average 3.8% more this year for domestic consumers (an average €41 EDP bill will now cost a further €1.5)
– Non-prescription over-the-counter medication is no longer state-funded
– Public transportation will see rises of between 3.5% and 4.5%
– Gyms and sports academies, which saw VAT rise from 6% to 23%, have had to adjust fees charged to users. An average €46 monthly fee will now cost €54
– The price of clothes and shoes has increased by 10%.
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