IMF Survey online: How will competitiveness be restored?
Thomsen: Portugal’s problems are above all structural, as evidenced by the very low growth during the good years before the global crisis hit in 2008 and by record-high unemployment. In a nutshell, Portugal needs to become much more open to competition. This is the only way to create jobs and generate higher incomes.
In this regard, I would highlight that the government is now considering what could be a dramatic “game changer” in the form of a sharp reduction in social security contributions in the order of 3–4 percent of GDP (offset by other appropriate tax and expenditure adjustments). This would reduce labor costs significantly and make goods produced in Portugal more competitive abroad.
More generally, Portugal’s economic problems have been caused in large measure by a lack of competition in the nontradable sectors of the economy, such as electricity, transportation, and telecommunications. The program includes measures to increase competition and reduce excessive profits in these sectors. These changes will happen through regulatory reform and accelerated privatization.
traduzindo: redução da TSU entre 8 e 12 p.p. (reduction in social security contributions in the order of 3–4 percent of GDP)
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