Portugal’s government is offering a decade of progressive tax breaks to its young as it bids to keep the country’s 18-to-35-year-olds at home and reverse a future-sapping brain drain. Under the proposed scheme, a feature of the country’s 2025 budget, 18-to-35-year-olds earning annual salaries of up to a ceiling of 28,000 euros would be tax exempt in their first year of employment. The level of exemption would then drop to 75% for years two through four, 50% for years five through seven and 25% from the eighth to the 10th year.
According to Luís Montenegro‘s centre-right minority government, which dropped its own incentive scheme to adopt one similar to that of the opposition Socialists it replaced in office in April, such a move could benefit 350,000 to 400,000 young people.
Average annual salaries in Portugal are around 20,000 euros, while income tax rates vary between 13% and 48%. The government estimates the cost of the proposed new approach would be 645m euros in 2025, compared to a capping proposal it had earlier put forward only to withdraw that would have cost a billion euros.
With a population of 10.4 million, official statistics indicate that some 850,000 young people (30% aged 15-to-39) emigrate from Portugal due to low wages and poor working conditions at home. While overall unemployment in Portugal fell to 6.1% in the second quarter of 2024, the level was 22% among young people.
Prime Minister Montenegro has pledged to ease the way for young people to buy their first homes with exemptions from certain municipal taxes, stamp duty and associated fees. Reducing personal income tax, he declared, was “a touchstone” of government policy. The dearth of affordable housing has sparked a series of major protests in recent years. The rental market issues “golden visas” conferring residency rights for real estate purchasers of properties worth half a million euros and above, plus a cozy tax-saving “non-habitual residency scheme” for foreigners and a “digital nomad visa” that enables wealthy foreigners to work remotely and pay a tax rate of 20%, have all come under fire.
However, if the new government fails to get its budget approved in parliament by the end of November, Portugal may have to face its third snap election in as many years. The Montenegro-led, centre-right Democratic Alliance won 80 seats in March’s general election, well short of a majority in the 230-seat legislature. The Socialists hold 78 seats, while the far-right Chega party, founded just five years ago, has 50.
