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Friday 15 October 2010

EXCLUSIVE – Compulsory Cuts In Euro Land

While we wait for the Government’s Comprehensive Spending Review (CSR), there is one country in mainland Europe where a budget has just been presented, and some of the cuts are eye watering. That country is Portugal, and these are some of the measures put forward by the minority administration of PM José Sócrates (whose party, the PS, is nominally of the centre left).

Family allowances are being cut. Government employees are facing a pay cut of “up to 10%”, although in some cases, increased pension contributions will make the effective cut higher. This category includes civil servants, teachers and lecturers, judges and court staff, and most significantly public sector health workers.

This last is worrying, as retaining sufficient doctors and other key workers in the public sector is already a problem. The sector does not, however, include the military, police, or public transport workers at state owned bodies such as Lisbon street transport operator Carris.

And then there is a two-pronged VAT increase. Firstly, all three VAT rates are going up: those previously at 5%, 12% and 21% will rise to 6%, 13% and 23% (the EU’s highest top rate is 25%). But the second part is the transferring of groups of items from one of the lower VAT rates to the highest, and of course this could happen in the UK, should the Coalition decide.

So what is moving up the VAT scale? Chocolate and other flavoured milk, canned meat, canned fruit, canned veg, marmalade, jam, fire alarms and extinguishers, fizzy drinks, soft drinks and juices including those made from concentrate, cooking oil, and margarine, for starters. Much in that list is (still) zero rated in the UK.

However, red wine appears to be staying in the 13% category. Moving that on to the top rate really could kick off the unrest.

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