Changes to the IRS indicate a positive impact of €129 per year on household income, notes Banco de Portugal

The impact of changes to the IRS, introduced by the State Budget 2023 (OE2023), on household income is positive, but limited, averaging around 0.9% or €129 per year, according to the Bank of Portugal (BdP).

In addition to updating the 5.1% taxable income bracket limits, OE2023 is also considering, with respect to the IRS, a reduction in the marginal tax rate for the second bracket, from 23% to 21%, and a reform out of existence, with the goal of preventing the absorption of taxes on payroll gains at the level of Close to the national minimum wage.

According to the Bank of Portugal, as a whole, these measures “have a positive, but limited, impact on household disposable income”, averaging around 0.9%, equivalent to 129 euros per year.

In addition, BdP points out in information released today, those changes to the IRS affect “a similar proportion of different deciles of income,” except for the first two that “benefit relatively less because of the lower tax rate.”

A separate analysis of the different adjustments to the IRS reveals that the measures in question “display different distribution profiles”.

Thus, fixing the bottom line (income for which the IRS is not charged) offers, according to the banking supervisor, a greater percentage impact between the second and fourth decimals of income.

The IRS brackets update of 5.1% and the decline in the marginal rate for the second tranche, when viewed together, is the “increased percentage effect with household disposable income.”

“In this way, the concentration of income gains generated by the minimum existence fix in the first half of the distribution partially offsets the regressive effect of the remaining measures and generates relatively similar increases in the different deciles,” concludes BdP.