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Real Estate Increases Municipalities’ Revenues

5 April 2018

The real estate market boom has led to an increase in the second largest source of revenue for Portugal’s municipalities, the Municipal Tax on Real Estate Transmission (IMT). Revenues from the tax grew 30% last year, according to a study by the Public Finance Council (CFP). Investments by municipalities have risen as well, together with subsidies.

In 2017, Portugal’s local governments raised 852 million euros through the IMT, €197 million more than in 2016, a figure that helped offset increases in other expenses. Local business taxes (derrama) also contributed to strengthening municipal budgets, reflecting increased business volumes. Collection increased by 18% to a total of 324 million euros.

“Favourable trends in IMT (almost half of the increase in municipal revenue) and derrama collections are sustaining rising tax revenues,” a study on Local Government Budgetary Implementation stated. The report also stated that the IMT, a tax levied on real estate transactions, was “buoyed by positive trends in the real estate market (an increase of €197 million in revenues, corresponding to a year-on-year change of 30%),” “exceeding the forecast for the whole year.”

On the other hand, “revenues stemming from the Municipal Property Tax (IMI), the main local tax, registered a decrease of €34 million compared to 2016.” This fall is due in part to the fact that most municipalities elected to charge the minimum IMI rate last year.

The data also shows that municipalities are spending more as well. Municipal investments soared by 40%, increasing by 421 million euros to a total of 1.5 billion euros. Subsidies also rose sharply, up close to 50% to €112 million.

The CFP study shows that in 2017, the municipalities’ outstanding debts stood at €460 million, a decrease of €203 million compared to the previous year. “Total municipal debt that is counted towards the applicable legal limit decreased during 2017: excluding non-budgetary debts and legally envisaged exceptions, debts fell by €493 million in 2017,” the document stated.

The municipalities’ as yet unpaid expenditures showed an overall improvement in 2017 compared to 2016. There was a decrease of €104 million in non-financial liabilities, a decrease of €73.5 million in accounts payable, as well as a reduction of €50.6 million to outstanding arrears.

Original Story: Idealista

Photo: Namcha ph / Unsplash

Translation: Richard Turner