Inflation

Eurostat tells us that inflation in Portugal went from 2,0% in September 2010, to recently 2,9% to 3,5% currently in Portugal.  The total inflation of 2009:  -0,9% , 2010: 1,4%

This 3,5% inflation is higher than in most other EU countries and the growth rate seems high...  Of course we must wait for the final numbers of 2011 and 2012 to confirm whether the indications in fact lead to an inflation of this order.

Looking at transport costs and electricity which all have or will grow at a rate at over 3,5% the future looks a bit expensive.

Especially taking into account salaries either have not grown or have been diminished. And not forgetting the added tax burden.

Also, I believe we can take it for granted that many/most public services will either/both raise the cost or add supplemental taxes (*)

All in all many Portuguese will soon see a power of purchase 30% to 40% lower than a few years ago.  At this moment I estimate the numbers but will in a future article look in more detail at PEC 1 to PEC 6 (**), and other austerity measures we are suffering in Portugal


(*) My favorite is that when you call some public entities you pay a fee per minute in addition to the actual cost of the call.  Consequently, I can foresee, they will wait even longer to answer the phones.  Of course it is not all bleak.  I am sure there will soon be prizes to win among the callers to create even more traffic:
"Congratulations - you just won a ham - you are still number 98 in queue to talk to an operator to report a dead relative."

(**) PEC 5 and PEC 6 do not actually exist under that name, but I like the sound of PEC = pack in English.   PEC means Programa de Estabilidade e Crescimento - Program for stability and growth, e.i. austerity measures in a package.  Pack 5 and 6 are by the current government.  PEC 4 was never implemented (the government fell on 4.  After 4 packages in 1 year and three promises of this being the last one...)

The Shadow Economy

Interesting link to study on the European Shadow Economy (pdf) (Patronized by Visa Europe), Hat Tip: Economia e Finanças (blog)

The shadow economy is 19% and growing in Portugal.  This is around the average for Europe but in the high end for Western Europe.  I would have thought it was larger in Portugal.  Alas, I have no proof to that.  But do bear in mind that such studies are not easy to perform and hard evidence is hard to come by.

However, let me point out that countries like Denmark, Norway, Germany and Sweden supposedly have  parallel economies of around 15%.  Considering then that southern Europe should only be in the interval from 19% to 25% is highly unlikely.

Undoubtedly the shadow economy will tend to grow under austerity measures and likewise the government will do all in its power to limit it.  I remember reading about two actions recently announced/aired by the Portuguese government:

1. Invoices will be electronic and registered through the revenue service
2. Fines for manipulating invoices/accounting are multiplied by at least a factor 7

A typical question in Portugal:  Do you want it with or without invoice?  Without, usually means you pay the bill without IVA (currently 23%).  Also it means the transaction is not registered in the books.  Curiously, you are nearly regarded as a retard when asking for an Invoice.  Furthermore, why is it common practice most places by default to emit receipts that on the bottom declares?:  Not valid for tax purposes  Also, why does it take so long time many places to get a real receipt or invoice?

I have in the Algarve in a restaurant once waited 90 minutes for an invoice.  Our local McDonald's emits receipts (for tax purposes) by default.  They are however illegible due to a problem with the printer.  I once asked for an legible invoice.  That took 15-20 minutes to provide.   Meanwhile the food got cold.  Supposedly they fixed the printer.  A few days later when I came back the invoice was again illegible.  I, however, had learned my lesson and did not ask for another...  To make sure, the receipt paper McDonald's and many other places use is for thermal impression.  Like in the old fax machines.  The paper unless kept at 43% humidity at a constant temperature of 19,3 degrees celcius in a dark place becomes slightly brownish - and most importantly: blank - within less than a month.

I have been told retail/services sales software in Portugal may for a small extra fee have double accounting enabled.  You turn the key left on the cash register and the transaction is entered into the books and an invoice can be generated.  Turn the key right and it goes into the shadows...   Wouldn't surprise me none that them right key turners are in the majority!?

You cannot but succumb and admire human ingenuity involved in avoiding taxation.   Only a politician lacking more (of our) money has more imagination.

The study, BTW, indicates that lawyers, doctors and other liberal professions are the worst culprits.  It does remind me of a claim many years ago in Portugal shown in newspapers:  80% of all lawyers then declared they earned minimum salary.   I doubt they dare to defraud to that degree currently as the tax authorities from time to time do wonder how the 7 Ferraris in the garage were paid on minimum salary. All in all, perhaps the play on the word "lawyer" to "lier" has more than one reason.

May I make a small suggestion to the government?  Make a new law:  Within 30 days 30 hours and 30 minutes from today all commercial establishments and liberal professions must emit a receipt/invoice (tax purpose valid) for all sales/transactions.  If the amount is more than X euros the buyer's tax number must be included (or ID number for foreigners).

Make a public campaign explaining why tax must be paid by all, otherwise the ones not paying will have you pay!  Within a short time, most will ask for the receipt and complain if not receiving it.

Next law:  Within 1 year all such transactions must be transmitted electronically to the revenue services (for privacy reasons all private tax numbers must be anonimized)

Result: IVA (value added tax *) would bring in much more.  IRC (company tax) and IRS (personal tax) will also bring in more.  Some establishments and some liberal professionals will of course go broke/give up.  But all in all the tax rates could be lowered and still the same revenue obtained.  (Alternatively, and unfortunately more likely, we will also make the politicians happy by giving them more money to spend - in best case only some of the extra revenue will be returned to the honest citizens)

Apropos:  The current government is aware of the problems and the previous government(s) have already made some rules concerning receipts/invoices.  One of the recent proposed austerity measures is to let all citizens deduct 5% of the IVA paid.  Of course that requires receipts.  But what on earth should make people ask for more receipts after they have gathered 1/20 (say a month's worth) of what they spend in a year?  Still it must be recognized as a beginning.

(*) Why on earth is value added tax called that?  It does not add value to a product.  It removes value.  Say a product is worth 10.  With 10 plus 23% VAT the price becomes 12,30.  But the product still is only worth an inherent 10.   The product now has as an extra cost of 2,30 for the consumer.  The consumer loses 2,30.  It is a value lost tax at the moment of acquisition:  VLT!  I of course know why it is called VAT.  It is newspeak invented by politicians.  The honest name would be sales tax or added cost tax. 

The inauguration circus

Austerity has at least had one positive element.  There are no major public works being finished now.  There are no inaugurations waiting to happen just before elections.  An otherwise typical trick used by politicians:  "See what I have done!"

And unsaid: "Look how stupid the people is.  I spend their money. Have companies, where I soon will work, build.  I make sure the construction is finished right before elections, or I let it stand empty until then.  I inaugurate while they applaud.  And they believe me!  They re-elect me!"

Just for illustration - no foul play suggested...

New 3 euro coin coming soon

I do not know where this image comes from.  But it sure is on the spot.  The bank packages and the austerity measures come to mind.   How come none of the responsible people pay their dues?   The people always ends up on all four...
  
Sometimes an image does say more than a 1000 words.

Thanks to the author

Austerity - a little bit of prehistory

The Portuguese Economy has been sick for years.   It is an old problem.  The economic crisis was already a reality when Gueterres gave up in 2001 by throwing the towel into the ring - and even somewhat when he came to power in 1995.

From interesting article: Driving too fast

The very clever politician, Durão Barroso, took over government after Gueterres and in a moment of inspiration did what no prime minister should do, and told the Portuguese people how very, very badly the country was doing.  That of course assured that things got worse.  He promised (maybe even gave his word?) that he would stay with the government for the whole period to recuperate the country.  But when you are a born opportunist, your current job is going badly, a new and more prestigious job is offered - of course then your word is worth nothing...   For he was offered the job as the President of the European Commission.    A compromise candidate - naturally.  To my eternal wonderment he is now considered a person of integrity.   Were I the Portuguese people I would have him tried as a traitor, take away his citizenship and never let him set foot on Portuguese soil again.   I think some would suggest using the name Barroso as an analogue to Quisling.

After Barroso we got a politician for whom I had respect.  A born demagogue if anybody:  The new prime minister, Pedro Santana Lopes, head of the same PSD government (except for the guy who fled to Belgium).  Let me reiterate:  HAD respect.   The government was a minor catastrophe.  Of course it was no easy job taking over unprepared.  It also taught me that the Portuguese president in fact does have power as for the first time ever a president fired a sitting government.  The ex-mayor then president of course PS and the government PSD - but still.

After Santana Lopes we got his debating partner from TV:  "engineer" José Socrates.   The reason why I write "engineer" is that I am still not sure (along with a majority of the Portuguese population) whether he is an engineer.  Not that I give a damn qualification wise - to be prime minister you don't need to be an engineer.  And it is refreshing not having an economist or lawyer.  (BTW the number of lawyers in the Portuguese parliament is now down to one quarter.  That is better than it used to be, as the degree of banana republic is known to be directly proportional to the number of lawyers in parliament.)  But it is worrying to have a prime minister that either a) lies about his degree or b) has gotten it through mysterious ways.  Until anything proven I suppose we must give Mr Socrates the privilege of doubt.
Anyway Mr Socrates was initially a fresh breath.  I also HAD respect for him and rather enjoyed the debates he was involved in on TV before he was elected.   Mr Socrates in the 6-7 years of government actually did a few positive things such as trying to get teachers to work and raising the age of retirement.   Both unheard of in Portugal and even more so from a PS government.
But of course his errors more than compounded his successes.  The economic initiatives were the same as for all Portuguese governments:  Raise the taxes, borrow and then spend, spend, spend.  Why is it that most European politicians only subscribe to Keynesian hypothesis?  There are other economic "schools".  Is it because Keynes is always described first in books on economy?  All in all also another proof of the old adage:  It is so very easy to spend other people’s money.

For the last 4 months we now have a new PSD government.  The prime minister is Passos Coelho.  His government are currently implementing austerity measures that will hurt.  Until now the only implemented ones are extra income for the state.  But newly announced measures also aim to cut down public expenditure.   Unfortunately, except for one small measure - there seem to be none to resolve the structural problems of the country such as creating favorable conditions for private enterprise.

Portugal became a full member of the EU in 1994.  Of course all the initial EU subsidies were wasted as Portugal is the only country that was allowed to decide itself on how to spend them.  In exaggerated terms it did so on fictitious courses for grownups (with salary) - hence all the new school owners got Ferraris.  It also spend the money on traditional old fashioned industries such as mechanical and textile.   Guess how many of these endeavours still exist in Portugal today?

Portugal and spending are so close to synonyms it is chocking.  Not only spending but bad spending.   Visit Lisbon and you will see a western capital apparently on par with other capitals.  That is if you do not look behind the facade of amazing public works, highways to every village, monuments on each round about, major football stadiums for each city etc., etc.

Generally speaking the public sector is big and hugely ineffective.  Productivity is very low as you in reality only have to work if you want to.  Salaries are on an average nearly 50% (*) more than in the private sector.  You cannot be fired and you can go on sick leave indefinitely.  Pensions are huge - now becoming smaller - but meanwhile still nearly equal to the last salary.  Many retire very early, some after only 30 years of work.  Until you die you are member of a public health insurance equal to or better than private ones (not the least reason: the private ones kick you out before you get old).  No wonder all Portuguese mothers wish for the children to get a job in the public sector.

Education is largely a failure even though some improvement has been made.  Portuguese teachers are to some accounts the best paid and the least working in the OECD
The quality of students in and from higher education is with some exceptions rather miserable.

The justice system is largely broken down.   People with money are mostly immune to all lawsuits as they manage to drag the process out until it prescribes by using "good" lawyers and their contacts.  The number of pending processes is so large that it seems impossible ever to get to the bottom.   Many people and companies do not bother to use the juridical system as it seems hopeless.

The health care system is also in a miserable state.  Many use the emergency in hospitals instead of going to the doctor.  It can take months to get an appointment.  The conditions at some hospitals are appalling. Try to visit and see for yourself.

The last many years a great scheme has been used by politicians (local and state).  The creation of public companies.  It is great to be on the board of such a company and it is a great way to place more "boys" as directors and so on.  Of course these public companies are not limited to follow salary limitations of public entities...  All or nearly all the municipalities in Portugal have created such companies.  There are around 308 municipalities in Portugal.

Interestingly, to my knowledge, not a single public company has so far been abolished/closed/absorbed due to austerity measures.  There are plans to do so.  But so far, basically all the austerity has been the citizens paying more tax and loosing privileges.

(*) By some accounts they are more - by some less.   The current government gave a value of 10-15%.  But it does depend on how you look at it.  What is that value of not being able to be fired, less working hours, earlier retirement, lifetime "private" health insurance etc.  This blog article (in Portuguese) from "O Insurgente" based on a study by the Portuguese National Bank claims a 91% higher salary per hour in the public sector and 79% all in all.

One must, however, also bear some other factors in mind.  The type of work in the public sector compared to the private sector is quite different.  Medics as a group earn poorly as public employees compared to requirement for education comparable jobs in the private sector.  Also they often will work in shifts.  But most importantly their jobs involve literally life and death decisions.  Medicine might be the extreme example, but other professions such as policing and teaching are also very important professions.  Often jobs in the public sector will involve life quality and destination deciding decisions for the citizen.  One cannot but admire dedicated people in professions such as those.

There are more factors, to quantify them into salary terms is very difficult and well worth a future article.

Why bureaucracies ruin everything

Here is Dr. Jerry Pournelle's Iron Law of Bureaucracy:


"In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely."


It sure is valid for organizations like NASA.  Once it created incredible results - I doubt they could put a man on the Moon at this time - even using the old existing technology. 


It is a well known fact in Portugal that no (*) public bureaucracy is interested in the well being of the citizen.  They exist solely for their own sake.  There are hilarious examples of the kind of document you need to forward to get information from public entities.  The most important of course to be showing the proper respect and abasement.


A few years ago we were told that the Ministry of Education paid a large number of teachers to work for their own union.  However, I believe that is no longer the case. 


(*) There are some exceptions to that, as some public employees are very caring and work very hard.  Unfortunately, they often have to fight their own organizations.  

Nepotism

Definition from Wikipedia: "Nepotism is favoritism granted to relatives or friends regardless of merit.^[1] The word nepotism is from the Latin word nepos, nepotis (m. "nephew"), from which modern Romanian nepot and Italiannipote, "nephew" or "grandchild" are also descended."

The amount of nepotism is astounding.   It is an integral part of Portuguese society.  Favoritism and corruption abound and perhaps the political class is the worst.

I know people who vote for the Communists - not because they are religious and believe (communism is a religion!), but because they supposedly are the only honest people around.  Leftwing BE and rightwing CDS-PP probably have a few honest people as well.


Basically, Portugal has a two party system:  PS and PSD.  They call themselves socialists and social democrats - which does raise some confusion as they are neither.


Traditionally, Portugal is a class based system - much like England.  There is some mobility between classes but not much.  The biggest exception being a growing educated middle class.   What you do, where you live, your family, your friends and the manner you speak quite clearly identifies your class.


One of the aims of the political class is to keep the status quo as much as possible.  To give you an example:  In thirty years the miserable minimum salary has only risen 88 Euros since 1974.  The minimum pension only 36 euros.  The minimum salary is currently a bit below 500 Euros.  Half of all Portuguese have this income or less.   To live in Lisbon on a minimum salary is IMHO not possible.  Living costs here are on level with Western European countries. 


Another example is the acquisition of housing.  When buying a house or apartment the buyer pays a transfer tax of around 10%.  The seller may have to pay tax on profits on the sale, if it is not his primary home.  The official price also may have some effect on house taxation.   What people with money do - is to pay for the house in cash.  Officially a very low price is declared.   Result:  No or very little tax...


Now, politicians in Portugal have a rather low salary.  A common member of parlament only earns around 3800 Euros plus extras.  A minister around 6000 plus extras (I believe).  The president just 7630 plus around 2300 in extras. 


So what attracts the nepotists?  Well, you do get power and power is worth money if you have no scruples.  Here is a link to 15 former politicians and their current salary.   Is it not interesting how many (nearly all?) ex-politicians earn that well after their career as politicians.  In Portugal it even has a name:  "Jobs for the boys".   Qualifications are irrelevant.  Want to manage a hospital? Be on the board of an oil company?  Running an airline is no longer possible - A smart CEO at TAP put a stop to that.  But otherwise, only the imagination is the limit.

Why Inside Portugal

I have lived more than 20 years in Portugal by choice.  I have always thought it a wonderful country.  I have been treated with respect, dignity and friendship by the Portuguese.   It is difficult to imagine being treated better as a foreigner in any other foreign country.  Even though I am a resident with a family; I have always thought I should act as a guest.  A guest of course does not criticize the host nor try to change the dwelling of the host.  A guest always should show the best behavior.

I could write much positive about Portugal, as it is a country and people I have come to love.  Indeed, I always try to promote Portugal and its products abroad.

My stay in Portugal has been long.  My professional life is and my family is here.  My two children are born in Lisbon and are half Portuguese and half Danish.  We avoid using the facilities provided by the state and instead use a private school, private hospitals, private doctors etc.  In case of emergency we have a few times used the public health system and have been well treated.  My business is here and nearly all my clients outside of the country. Thus the income I bring to Portugal should be valuable as it is nearly pure export and is taxed here.

Portugal is in a crisis on multiple levels.  The most obvious is the economy.   Keeping the above in mind I believe I should now speak up.  I will no more be a mere guest.  For it is my duty as a parent to Portuguese children and a member, albeit partial and non voting, of a democracy in dire trouble.

The idea with this blog is to discuss and expose problems and present ideas for solutions to make this a better place to live.  My hope is that an international view point from somebody living inside Portugal might be of value.  Presenting my view point I will probably insult and even rave.  The focus is mainly on negative aspects and the bad news.  There will be attempts of humor, biting sarcasm and outrageous exaggerations to emphasize.   I will certainly hurt the feelings of some Portuguese readers, for which I regret and apologize - if you are not the guilty target.  Feel free to criticize Denmark in return.  It is by no means a perfect country - of which there are none.  And bear in mind; I prefer to live in Portugal.

You may want to know a little bit about me.   I am of a very liberal mindset in the European sense, some would call me a libertarian.  But then again some Portuguese socialists could run the risk of being called far right in Scandinavia.
I believe all people have the right to live as they please, as long it does not interfere with other people's equal rights.  Education, respect, politeness, helpfulness and tolerance are pillars of civilized society.  Private property is just that.  I am a firm believer in regulated capitalism but also a minimal state with a minimal number of laws.  Private endeavors must be regulated, there must be law and justice in the land.  I believe in punishment for adult criminals and rehabilitation only for youngsters.  I am fiscally conservative.  I believe in representative democracy and not the rule of the masses.
Large differences of social or economic standing in a society is a recipe for disaster on multiple levels and should be avoided - otherwise:  Vive la différence!
All citizens must have access to good health care, adequate housing and nourishment.  People with an ascertained need must be helped - but only if they cannot help themselves.
All children no matter their social class or their parents, must have equal access to a life and that includes world class education.  Remember our children and young are our future.