IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
Competitiveness is embedded in the private sector. Employment is created only the private sector. Wealth increases through the private sector. No public intervention can manage to replace the private sector, no Government know how to make business and money. As a consequence, the real economy of a country relies on its private sector, not on the Government. Portuguese Prime Minister Pedro Passos Coelho understood this fact and decreased dramatically corporate tax from 25% to 7.5%.
That is a 17.5% decrease! “The time for investments has arrived” declared Finance Minister Vitor Gaspar. And investment can be only done efficiently by companies. The reason is easy to understand: private investments need return on investment. Therefore it must work, create competitiveness, innovation and employments. And for this investment to be important and give benefit, corporate tax should not become an unbearable burden. Prime Coelho considered then that the only way for Portugal to a new economic growth was to give incentives to companies and investment.
With a GDP that decreased by 3.7% and an unemployment reaching 17.7%, there were no choices. Prime Minister Coelho promised to lower taxes: that is done for companies. All companies that will invest will benefit from this 7.5% corporate tax. It will be the lowest in the European Union. We shall follow the implementation of this new corporate tax rate and its effect on investment, production and competitiveness.
When all bad ideas were implemented, only good ideas are left. Prime Minister Coelho’s decision is one of these good ideas.
Sylvain Charat, Ph.D