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Scheduled tax reductions yield €7 million in savings for local residents

Government in Madeira approves legislation to lower Personal Income Tax (IRS), effective from January, providing citizens with a total tax savings of seven...

Saving €7 million for residents due to tax reductions
Saving €7 million for residents due to tax reductions

Scheduled tax reductions yield €7 million in savings for local residents

The Regional Government Council of Madeira, led by Social Democrat Miguel Albuquerque, has made a significant decision to adjust the tax differential allowed by the Regional Finance Law. This adjustment aims to provide tax cuts for residents, particularly those in the 5th, 6th, 7th, 8th, and 9th IRS tax brackets.

The 5th and 6th IRS tax brackets will see an increased tax differential, while the 7th, 8th, and 9th brackets will experience reductions of 15%, 9%, and 3% respectively. This measure, which will be retroactive to January 2025, is estimated to result in €7 million savings for Madeira residents.

The increased tax differential, which currently allows for a reduction of up to 30% in personal income tax (IRS) compared to mainland Portugal, is intended to lower the regional tax burden, thereby increasing residents' disposable income. This move is expected to stimulate local consumption and economic activity, potentially attracting new residents or businesses to the region.

The Regional Government Council's decision was made at a meeting in Funchal and involves submitting a proposal to the Madeira Legislative Assembly for consideration. The Assembly, consisting of Social Democrats and Christian Democrats who form an absolute majority, will deliberate on the proposal.

The tax cuts are part of a broader strategy to enhance Madeira's economic growth and competitiveness relative to mainland Portugal and other autonomous regions. A similar approach has been noted in the Azores, where the government fully utilized their permitted 30% tax differentials in multiple tax categories. This strategy is seen as a means to protect the population from unbearable tax burdens while accepting tighter regional public finances.

The immediate impact on tax collection is a relative reduction, as the region will collect less personal income tax compared to if it followed mainland tax rates. However, the broader regional economy might benefit from increased spending power and investment incentives tied to these tax reductions.

In conclusion, while the immediate fiscal income from IRS will decline, the long-term benefits could include increased spending power, stimulated local economy, and enhanced regional attractiveness. The proposal is now awaiting approval from the Madeira Legislative Assembly.

[1] Madeira Government Press Release, January 2025. [2] Azores Government Press Release, December 2024.

  1. The news about the Regional Government Council of Madeira lowering the regional tax burden by providing tax cuts for residents, particularly those in the 5th, 6th, 7th, 8th, and 9th IRS tax brackets, is making headlines in general-news and business sectors.
  2. In Portugal, the finance department is closely monitoring the decision made by the Regional Government Council of Madeira to adjust the tax differential allowed by the Regional Finance Law, as it could impact business and political affairs.
  3. Here in Portugal, the opposition parties have been expressing concerns about the Madeira Government's decision to increase the tax differential for the 5th and 6th IRS tax brackets and reduce it for the 7th, 8th, and 9th brackets, arguing that it may have broader implications for the nation's finance and business landscape.

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