The Portuguese government will cut taxes for people aged 35 and under, in an effort to discourage young people from emigrating and encourage immigrants to settle in Portugal.
As part of the budget presented to parliament on Thursday, the centre-right government of prime minister Luís Montenegro aims to lower income tax for young people.
People earning an average salary of less than €20,000 (£16,700) currently pay a tax rate of 26% on income above €16,500.
Under the government’s scheme, those aged 35 and under who earn up to €28,000 (£23,400) will pay no tax at all in the first year. The tax burden will gradually increase over ten years.
The measures will also apply to other countries. They are the result of a compromise between Montenegro’s government led by the Democratic Alliance and the Socialist Party (PS), which came up with the proposal earlier this year.
In recent years, foreigners have flocked to Portugal, attracted by the affordable rental properties, mild climate and natural beauty.
In the capital Lisbon and the southern region of the Algarve, the number of so-called “digital nomads” has increased. Their salaries are high rent is going up a lot – usually the local Portuguese price.
Low wages in Portugal are also a problem. The minimum wage is €870 (£727) and, at €1,640, the average wage is one of the lowest in Europe.
As a result, many young people often choose to travel. About 30% of Portuguese between the ages of 15 and 39 – about 850,000 people – are now living abroad, according to data from the country’s Emigration Observatory.
Earlier, the prime minister promised that his government would “give young people the future they deserve”.
“We need young Portuguese people to take their skills and put them into work and work for the country,” he said in May.
The measure is expected to cost €650m.
Youth minister Margarida Balseiro Lopes told Portuguese media that although the measure has a high financial cost, “the country’s cost of having the most suitable generation, fleeing and leaving and migrating, is incomparably higher than the financial cost of the measure”.
But Lisbon resident João doesn’t believe the new system will do anything for young people. The government must focus on policies that address the high cost of housing, he said.
“The current government seems determined to increase inequality in this country,” he told the BBC, adding that the government is “helping rich foreigners who don’t need any more incentives to come here”.
Bernardo, 30, a music teacher who moved from Porto to London, felt the measures were “too late.”
“The truth is that in Portugal wages are very low and rents are very high at the moment so this seems to make a big difference in the long term,” he said.
Although he has lived in the UK for several years, he believes that even if this measure had been introduced earlier, it would not have made a difference because of the difference in wages: “I earn three times more in the UK than I do. He will go to Portugal,” he says.
The budget will only be implemented if the opposition Socialists reject it or if the far-right Chega party approves it. No situation is certain.
Failure to pass the budget will lead to the collapse of Montenegro’s government, which came to power in April after the third snap election in three years.
The parliamentary vote on the budget will be held on October 31.
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