The changes to the PIT in the State Budget for 2023 include a cut of the marginal tax rate of the second bracket from 23% to 21%, an update of the brackets limits by 5.1% and a reform of the minimum untaxed income. This last reform avoids that wage gains close to the minimum wage are totally absorbed by the tax. These measures have a positive but limited impact on household disposable income (0.9% on average, which corresponds to 129€ a year). The impact is similar on all income deciles except for the first two, which benefit less from these changes due to their low tax incidence.

Individually, these measures have very different distributive profiles. While the impact from the reform of the minimum untaxed income is concentrated between the second and the fourth decile, the combined effect from updating the PIT tax brackets and reducing the marginal tax rate of the second bracket grows with household disposable income. As such, the concentration of income gains, in percentage terms, from the minimum untaxed income reform in the first half of the distribution partially compensates the regressive impact produced by the rest of the measures and generates proportionally similar percentual increases by decile.

For more details, see the box “The redistributive impact of recent measures to support family income”, published in the Economic Bulletin of Banco de Portugal, December 2022.

Prepared by Sara Riscado and Lara Wemans. The analyses, opinions and findings expressed above represent the views of the authors and not necessarily those of Banco de Portugal or the Eurosystem.

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