Portugal slashes tax to stem brain drain among the under 35s

The Portuguese government is set to slash taxes for workers under 35, with the aim of discouraging emigration among the demographic and attracting young foreigners to settle in the country.

The move is designed to address the issue of an ageing population, driven by low birth rates and increasing longevity.

Exacerbating the situation is the exodus of the country's under-35s abroad who are lured by a broader range of opportunities in other countries in Europe and beyond.

Emigration is also being driven by the search for higher wages as Portugal has one of the lowest average salaries in Europe, standing at €20,946 a year, according to Statista compared to $59,428 (€55,000) in the US, according to Forbes.

Thirty percent of the country's population between the ages of 15 and 39 have moved away at some point, according to data from Portugal's Emigration Observatory, reports The Guardian.

To stem flow, the government has proposed introducing tax incentives targeted at young people in the 2025 budget, recently submitted to Parliament.

If approved, the new policy will also apply to young foreigners, as the country seeks to attract talent. “It’s worth believing in Portugal,” the prime minister Luís Montenegro, leader of the minority center-right minority government, said in August.

Under the proposal, individuals up to 35 years old would be tax free for the first year on income of up to €28,000.

The tax exemption would drop to 75% from the second to the fourth year, 50% between the fifth and the seventh and 25% from the eighth to the 10th year, EuroNews reported.

It is uncertain whether the proposal will be able to go ahead, however, given the current fragility of Montenegro's government. In fact, the Socialists have already announced that they will try to block it, reports La Sexta channel's news site.

According to finance minister Joaquim Miranda Sarmento, the tax incentives could benefit between 350,000 and 400,000 young people, EuroNews reports.

In addition to reducing taxes on younger people's income, the government also wants to introduce measures to make it easier to rent or buy property.

Under the proposed scheme, young people would be able to take out a mortgage on 100% of the value of their first home, addressing the difficulty of finding the lump sum necessary for a down payment.

Regarding young families, the government plans to expand the free daycare program to the preschool network, involving the public, social and private sectors, CNN reports.

According to CNN, productivity bonuses are also on the cards. This would mean that up to 6% of the base salary would be exempt from contributions from those eligible.

Using this roadmap, Portugal seeks to attract and retain young talent at a cost of €645m in 2025 or 0.2% of GDP.