In an effort to combat youth emigration and attract foreign talent, the Portuguese government has introduced a bold new tax initiative aimed at people aged 35 and under. The measure, part of the latest national budget proposal, includes significant tax cut offs for Portugal’s under-35 population, offering financial incentives for young people to stay and work in the country. This initiative is also extended to foreign residents, with the government hoping to make Portugal a more attractive destination for both locals and expats.
Tax Reductions for Young People
The central piece of this new policy is a tax reduction targeting young workers under 35. Under the current system, individuals earning around €20,000 annually are taxed at 26% for income above €16,500. However, with the new proposal, those aged 35 and under who earn up to €28,000 annually will be exempt from paying income tax in their first year of employment. After the initial year, the tax burden will gradually increase over the following decade, giving young professionals a significant break early in their careers.
This measure is part of a broader strategy to stem the flow of young Portuguese workers leaving the country for better-paying opportunities abroad. According to data from the Portuguese Emigration Observatory, around 30% of Portuguese citizens aged between 15 and 39, roughly 850,000 people, currently live outside the country, contributing to a concerning “brain drain.”
Foreign Talent Also Targeted
The tax cut offs for Portugal’s under-35 population are not limited to local citizens. Foreigners who move to Portugal will also benefit from the same tax exemptions. This move is seen as an attempt to capitalize on the growing number of digital nomads and international professionals who have already been flocking to Portugal in recent years. The country’s mild weather, low cost of living, and beautiful landscapes have made it a popular destination for remote workers. However, the influx of these highly paid professionals has also caused concerns, as their presence has driven up rental prices, particularly in Lisbon and the southern Algarve region, making it harder for locals to afford housing.
Prime Minister Luís Montenegro has emphasized the need for policies that not only attract foreign talent but also ensure that young Portuguese workers can see a future in their home country. “We need young Portuguese people to seize their skills and put them to work on projects that benefit the country,” he stated earlier this year.
Economic Challenges and Youth Migration
Portugal faces an uphill battle in retaining its young workforce, a key factor driving the new tax incentives. The country’s wages are among the lowest in Europe, with an average monthly salary of €1,640 and a minimum wage of €870. In contrast, many Portuguese workers who emigrate, particularly to countries like the UK or Germany, earn significantly higher salaries. This wage disparity is a major factor in the ongoing youth migration crisis.
Some young professionals, however, remain skeptical of the new tax policy. Bernardo, a 30-year-old music teacher who relocated from Porto to London, believes the government’s proposal is “too little, too late.” Despite the tax cut offs for Portugal’s under-35 population, he points out that the difference in wages remains substantial. “I earn three times more in the UK than I would in Portugal,” he remarked, adding that tax reductions alone won’t be enough to bring him back.
Similarly, Lisbon resident João expressed doubt that the plan would address the root problems facing young people in Portugal, particularly the high cost of housing. “The government should be focusing on solving the housing crisis, not just offering tax breaks that benefit wealthier foreigners more than local residents,” he said.
Budget Approval and Political Hurdles
The budget proposal, which includes these tax cut offs for Portugal’s under-35 population, is projected to cost the government €650 million. It represents a compromise between the center-right government led by Prime Minister Montenegro and the Socialist Party (PS), which first proposed the idea earlier this year.
However, the plan’s future remains uncertain, as the government will need the support of either the Socialists or the far-right Chega party to pass the budget in parliament. Should the budget fail to pass in the scheduled vote on October 31, the Montenegro government could face collapse, having come to power only in April following a series of snap elections.
The Future of Portugal’s Youth
As Portugal seeks to balance the need for economic growth with the realities of youth emigration, the introduction of these tax cut offs for Portugal’s under-35 population could be a significant step toward retaining young talent. However, critics argue that without addressing broader economic issues like wages and housing affordability, the new tax incentives may not be enough to reverse the trend of young people leaving the country. Whether this plan will succeed in reshaping Portugal’s future remains to be seen, but for now, the government is betting on tax relief to keep its brightest minds at home.
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