Portugal eyes significant tax breaks for young people in bid to halt emigration

The Portuguese government has announced a decade-long plan to reduce the tax burden for young people, intended to discourage high levels of emigration.

People aged 35 and under, including foreigners, who earn below €28,000 would pay no income tax in the first year of the scheme, with rates rising to 25% between the eighth and tenth years.

Prime Minister Luís Montenegro‘s centre-right government, led by the Democratic Alliance (AD), proposed the tax incentives in its 2025 budget on 10 October as a compromise with the Socialist Party (PS).

Since visa changes in 2012, young renters have found themselves priced out by ‘digital nomads’ – remote working foreigners benefiting from lower taxes.

This issue is exacerbated nationally by low salaries: Portugal has one of the lowest minimum wages in the EU, at €870 a month, and is regarded as one of the poorest countries in Western Europe.

As a result of these unfavourable conditions, around 30% of 15-39-year-old Portuguese currently live abroad, according to a report by the Emigration Observatory – equal to roughly 850,000 people.

The report also reveals that Portugal has the highest rate of emigration in the EU.

Margarida Balseiro Lopes, the youth minister, justified the expense by suggesting that the cost of youth emigration is “incomparably higher than the financial cost of the measure”.

The scheme’s anticipated cost is €650m. This is a cheaper alternative to a previous proposal involving a 15% cap on income tax for 18-35-year-olds (costing €1bn), which was abandoned as a concession to the PS.

Margarida Balseiro Lopes, the youth minister, justified the expense by suggesting that the cost of youth emigration is “incomparably higher than the financial cost of the measure”.

The government claims that the plan will help up to 400,000 people.

However, the International Monetary Fund (IMF) has questioned the plan’s reliance on age-based preferential tax rates, which would cause “sizeable revenue loss” with an “uncertain” effect on the emigration of young people.

Montenegro’s budget comes at a dramatic time for his minority government, whose survival is dependent on either the PS or the far-right Chega party, which shot to prominence in the 2024 legislative election.