Until recently, aerospace engineer Pedro Monteiro thought he would join many of his peers moving from Portugal to its wealthy European neighbors in a bid to find a better-paying job once he finished his master’s degree in Lisbon.
But the Portuguese government’s proposed tax cuts for young workers – up to a temporary 100% tax exemption in some cases – and housing aid are making him think twice.
“The previous governments left young people behind,” said Monteiro, 23, who studies engineering and industrial management at the Higher Technical Institute in the Portuguese capital. “The country needs us and we want to stay but we need to see signs from the government that they are making policies that will help.”
Monteiro specifically cites the cost of buying or renting a house amid a housing crisis fueled by the influx of wealthy foreigners lured by easy residency rights and tax breaks.
He doubts the government’s new measures will be enough.
“Some of my friends are now working abroad and earning more money… and they have better opportunities for career development,” she said. “I’m a little skeptical about my job opportunities here in Portugal.”
Portugal is the latest country in Europe to seek to tackle the brain crisis that is holding its economy back. Tax breaks for young workers in the budget currently going through parliament will take effect next year and could benefit up to 400,000 young people at an annual cost of €525 million.
The flight of talent to rich northern countries is a problem Portugal shares with several others in southern and central Europe, as workers take advantage of freedom of movement rules within the trade bloc. Countries including Italy have tried other anti-flying programs, with mixed results.
By exacerbating labor shortages and depriving poor countries of tax revenue, it is yet another obstacle for the EU as it tries to boost sluggish economic growth while dealing with declining population and declining labor productivity.
Donald Trump’s victory in the US election this month raises the stakes, with the risk of a trade-wide tariff on European exports of at least 10% – a move economists say could turn Europe’s anemic growth into a full-blown recession.
About 2.3 million people born in Portugal, or 23% of its population, currently live abroad, according to Portugal’s Emigration Observatory. That includes 850,000 Portuguese people aged 15-39, or about 30% of Portuguese youth and 12.6% of the working-age population.
Another concern is that almost 40 percent of the 50,000 people who graduate from universities or technical colleges emigrate every year, according to a study by Business Roundtable Portugal and Deloitte based on official statistics, which has cost Portugal billions of euros in lost income tax and social security. donations.
Demographic hell
“This is not a country for young people,” said Pedro Ginjeira do Nascimento, executive director of Business Roundtable Portugal, which represents 43 major companies in the nation of 10 million people. “Portugal is facing a real human hell because the country cannot create the conditions to retain and attract young talent.”
Internal migration within the EU is partly driven by wage differences between its member states. Some economic migrants also say they want better benefits such as pensions and health care and less rigid structures, giving more responsibilities to those in junior roles.
Concerns are growing over the long-term viability of Europe’s economic model with its rapidly aging population and its failure to gain large shares of the future’s high-growth markets, from technology to renewable energy.
Unveiling a series of reform proposals aimed at boosting innovation and investment in the region, former European Central Bank chief Mario Draghi said in September that the region faced the “small pain” of recession if it did not compete effectively.
Eszter Czovek, 45, and her husband moved to Austria from Hungary, where workers earn an average of 40.9 euros ($43.22) an hour compared to 12.8 euros an hour in Hungary, the biggest wage gap between neighboring countries. EU.
The number of Hungarians living in Austria increased to 107,264 at the beginning of 2024 from only 14,151 when Hungary joined the EU.
Czovek’s husband, who works in construction, was offered a job in Austria, while she worked in communications and accounting for various international companies. He cited better wages, pensions, working conditions and health care as reasons for moving. He also expressed his concern about the political situation in Hungary, which he fears could join Britain in leaving the EU.
“There was a regime change here in 1989 and 30 years later we are still waiting for a miracle to see it reach Austria,” Czovek said of the revolution three decades ago that ended communist rule in Hungary.
Since Brexit, the Netherlands has replaced Britain as the destination of choice for Portuguese talent, while Germany and the Scandinavian countries are also popular.
Many Europeans are still heading to the United States in search of better jobs — about 4.7 million would live there by 2022, according to the Washington-based Migration Policy Institute, marking a long-term decline since the 1960s.
In 2023, 4,892 Portuguese moved to the Netherlands, surpassing Britain for the first time, which in 2019 received 24,500 Portuguese.
At home, they face the eighth highest tax burden in the Organization for Economic Co-operation and Development (OECD) as house prices have increased by 186% and rents by 94% since 2015, according to property expert Confidential Imobiliario.
A single person in Portugal without children earned an average of 16,943 euros after tax in 2023 compared to 45,429 euros in the Netherlands, according to Eurostat.
Portugal will give under-35s earning up to 28,000 euros a year a 100% tax exemption during their first year of employment, gradually reducing the benefit to a 25% deduction between the eighth and tenth year.
Young people will also be exempt from transaction taxes and stamp duty when buying their first home and access to government-guaranteed loans and rental grants.
“We are making a strong package that tries to solve the main reasons why young people leave,” said Cabinet Minister Antonio Leitao Amaro in an interview with Reuters.
‘Things won’t change’
Leitao Amaro said he is not sure if the tax cut will work but his government that took office in April must try something new.
“If we don’t act with determination, things will not change and Portugal will continue in this way,” he said.
The Italian government has already found that tax breaks used as incentives are expensive and open to fraud.
In January, Italy suddenly cut back on its program that cost 1.3 billion euros in lost tax revenue, as it lured tech workers like Alessandra Mariani back home.
Before 2024, returnees are granted a 70% tax break for five years, which can be extended for another five years in certain circumstances. Now, it plans to offer a shrinking program aimed at specific skills after attracting only 1,200 teachers or researchers – areas where Italy has a certain shortage.
Mariani said the incentives were crucial in persuading him to return to Milan in 2021 by allowing him to maintain the standard of living he enjoyed in London.
“If the opportunity was the same without the scheme, I wouldn’t have done it at all,” said Mariani, who now works in the Italian division of the same technology company.
With her tax break set to expire in 2026 unless she buys a home or has a child, Mariani is facing a pay cut and said she is once again looking at the exit door.
($1 = 0.9463 euros)
(This Nov. 14 story has been reposted to correct the money change in section 17)
— Sergio Goncalves, Giselda Vagnoni, Gergely Szakacs, Charlie Devereux and Alex Fraser, Reuters
Source link
