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This is What a Real Fiscal Cliff Looks Like

Income taxes are going up by a third in Portugal on January 1. The FT reports:

“A fiscal earthquake”, “armed robbery”, “tax napalm”. Descriptions of the income tax increases facing Portuguese families from January 1 make the fiscal cliff looming in the US sound tame by comparison.

Lisbon plans to lift income tax revenue by more than 30 per cent, raising the effective average rate by more than a third from 9.8 to 13.2 per cent. Anyone receiving more than the minimum wage of €485 a month, including pensioners, will also pay an extraordinary tax of 3.5 per cent on their income.

The increases, which the centre-right government has itself described as “enormous”, are designed to ensure Lisbon meets deficit-reduction targets agreed with international lenders as part of a €78bn bailout.But the scale of the tax rises and uncertainties over whether they will produce the desired results have exposed Pedro Passos Coelho, the prime minister, to stinging criticism from both leftwing political opponents and senior figures close to the governing coalition parties.

“This is a kind of armed robbery of the taxpayer. It will not just penalise the middle class, it will kill them off,” Luís Marques Mendes, a former leader of Mr Passos Coelho’s Social Democrat party (PSD), said in October when the 2013 budget was presented in parliament.

But don’t worry; if this treatment fails the Europeans are ready to jack up taxes and cut spending even more.

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