Until recently, aeronautical engineer Pedro Monteiro thought that when he finished his master’s studies in Lisbon, like many of his peers, he would move from Portugal to richer European countries in search of a better-paying job.
However, tax breaks proposed by the Portuguese government for young workers – in some cases temporary up to 100 percent income tax exemptions – along with housing help, have forced him to reconsider his plans.
“Previous governments neglected young people,” said Monteiro, a 23-year-old student of aeronautical engineering and industrial management at the Higher Technical School in the Portuguese capital. “The country needs us and we want to stay, but we need to see signs that the government is implementing policies that will help us.”
Monteiro particularly points to the high cost of buying or renting an apartment amid a housing crisis exacerbated by the arrival of wealthy foreigners attracted by easier conditions for obtaining residence permits and tax breaks.
He doubts that the government’s new measures will be enough.
“Some of my friends are now working abroad and earning significantly more… and have better opportunities for career advancement,” he said. “I’m a bit skeptical about my chances of employment here in Portugal.”
Portugal is the latest in a series of countries in Europe that are trying to fight the “brain drain” that is holding back its economic development. Tax breaks for young workers, which as part of the budget are currently under consideration in the parliament, will come into force next year and could cover as many as 400,000 young people, with an annual cost of 525 million euros.
The outflow of talent to richer northern countries is a problem that Portugal shares with several other southern and central European countries, as workers use the rules of freedom of movement within the trade bloc. Countries like Italy have tried to counter this trend in various ways, but the results have been mixed.
Growing labor shortages at the regional level and depriving poorer countries of tax revenue are another obstacle for the EU as it tries to improve its weak economic growth while dealing with population decline and lower labor productivity.
Donald Trump’s US election victory earlier this month raised the stakes, with the risk of blanket trade tariffs on European exports of at least 10% – a move economists say could turn Europe’s anemic growth into a real recession.
According to the Portuguese Emigration Observatory, around 2.3 million people born in Portugal, or 23% of its population, currently live abroad. This includes 850,000 Portuguese citizens between the ages of 15 and 39, which is around 30% of young Portuguese and 12.6% of the working age population.
It is also worrying that around 40% of the 50,000 people who graduate from university or technical school each year emigrate, according to a study by Business Roundtable Portugal and Deloitte based on official statistics, costing Portugal billions of euros in lost income from income tax and contributions. for social security.
Demographic hell
“This is not a country for young people,” said Pedro Ginjeira do Nascimento, executive director of Business Roundtable Portugal, an organization that represents the 43 largest companies in this country of 10 million people. “Portugal is experiencing a real demographic hell because the country is unable to create the conditions to retain and attract young talent.”
Internal migration within the EU is partly caused by differences in wages between the members of the Union. Some economic migrants also say they want better benefits, such as pensions and health care, and less rigid, hierarchical structures that give more responsibility to those in lower roles.
Concerns are growing over the long-term sustainability of Europe’s economic model, with a rapidly aging population and a failure to capture a significant share of the high-growth markets of the future, from technology to renewables.
Presenting a series of reform proposals aimed at boosting local innovation and investment, former European Central Bank President Mario Draghi said in September that the region faces a “slow agony” of decline if it is not more effective in terms of competitiveness.
Ester Sovek, 45, and her husband are moving from Hungary to Austria, where workers earn an average of 40.9 euros per hour compared to 12.8 euros per hour in Hungary, the largest wage gap between neighboring EU countries.
The number of Hungarians living in Austria has increased to 107,264 by the beginning of 2024, from just 14,151 when Hungary joined the EU.
Soveka’s husband, who works in construction, got a job offer in Austria, while she worked in media and accounting in various multinational companies. She cited better pay, pensions, working conditions and health care as reasons for moving. She also expressed concern about the political situation in Hungary, fearing that it could follow the path of Great Britain and leave the EU.
“The regime changed here in 1989, and 30 years later we are still waiting for a miracle that will allow us to catch up with Austria,” said Sovek, referring to the revolution more than three decades ago that ended communist rule in Hungary.
After Brexit, the Netherlands has replaced Britain as the most preferred destination for Portuguese professionals, while Germany and Scandinavian countries are also popular. Many Europeans still go to the United States in search of better jobs – about 4.7 million lived there in 2022, according to the Migration Policy Institute in Washington, which nevertheless records a long-term decline in this migration since the 1960s.
During 2023, 4,892 Portuguese immigrated to the Netherlands, surpassing Britain for the first time, which received 24,500 Portuguese in 2019. At home, they face the eighth-highest tax burden in the Organization for Economic Co-operation and Development (OECD), even as property prices have risen by 186 percent and rents by 94 percent since 2015, according to real estate experts at Confidential Imobiliario “.
A single person in Portugal without children earned an average of €16,943 after tax in 2023, compared to €45,429 in the Netherlands, according to Eurostat data.
Portugal will offer under-35s earning up to €28,000 a year 100% tax relief during the first year of work, with the benefit gradually reducing to 25% relief between years eight and ten.
Young people will also be given exemption from transaction and sales taxes when buying their first property, as well as access to state-guaranteed loans and rent subsidies.
“We are creating a solid package that tries to address the main reasons why young people leave,” Minister Antonio Leitao Amaro said in an interview with Reuters.
“Things will not change”
Leitao Amaro said he wasn’t sure if the tax breaks would work, but that his government, which took office in April, had to try something new. “If we do not act ambitiously, things will not change and Portugal will continue on this path,” he declared.
The Italian government has already found that tax breaks as incentives are expensive and prone to fraud.
In January, Italy sharply scaled back its own program that cost 1.3 billion euros in lost tax revenue, even as it lured tech workers like Alessandra Mariani back to the country.
Before 2024, returnees were offered the right to a 70% tax credit for a period of five years, which could be extended for another five years in certain circumstances. Now, Italy plans to offer a more modest program focused on specific skills, after attracting only 1,200 teachers and researchers – areas where Italy has a particularly acute labor shortage.
Mariani said the incentives were a key factor in her decision to return to Milan in 2021, as they allowed her to maintain the same standard of living she had in London.
“If everything had been the same without this program, I wouldn’t have done it at all,” said Marijani, who now works in the Italian branch of a large technology company.
With her tax breaks set to expire in 2026 unless she buys a house or has a child, Marijani will face a pay cut and she says she is once again considering leaving the country.
Translation: NB
News
Source: www.vijesti.me
