Portugal announces $2.7 bln anti-inflation package

People wait in line to collect food from homeless charity CASA in central Lisbon
People wait in line to collect food from homeless charity CASA in central Lisbon, Portugal October 11, 2022. REUTERS/Pedro Nunes

LISBON, March 24 (Reuters) - Portugal's government on Friday announced measures worth 2.5 billion euros ($2.7 billion) to help low-income families cope with soaring inflation and high interest rates, including scrapping value added tax (VAT) on essential food products.

A week ago, the government had all but ruled out a VAT reduction.

But Finance Minister Fernando Medina said the aid package, which is expected to benefit around a million families, was made possible after the budget deficit fell by more than expected last year to 0.4%, a figure announced earlier on Friday.

"We made a commitment to the Portuguese that we would keep public accounts in order, because they allow us to be able to help the Portuguese. We are distributing the additional revenue (caused by inflation in 2022) to the Portuguese," he said.

Speaking at a news conference, he said the government was still discussing with producers and retailers which products should be on a list of essential food products that would be spared valued added tax, now at 6%.

The cost of that measure to the state would be an estimated 410 million euros, Medina said.

The total cost also includes 140 million euros in support for farmers, as well as an additional monthly subsidy of 30 euros to low-income households, plus 15 euros per child, and an extra 1% pay increase for the country's more than 740,000 servants, whose wages rose by an average of 3.6% on Jan. 1.

Portuguese inflation slowed slightly to 8.2% year-on-year in February, but core inflation accelerated, driven by prices of unprocessed food products, such as fruit and vegetables, which surged by 20.11%.

($1 = 0.9312 euros)

Reporting by Sergio Goncalves and Andrei Khalip; editing by Barbara Lewis

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