Portugal Introduces Tax Breaks for Youth to Curb Brain Drain

Portugal's government, led by Prime Minister Luís Montenegro, is taking steps to tackle the nation's ongoing brain drain by offering progressive tax breaks for young workers. Under the plan, which is part of the 2025 budget, individuals aged 18 to 35 earning up to €28,000 annually will enjoy a 100% income tax exemption during their first year of work, followed by reduced tax rates for the next nine years. The exemption would gradually decrease to 75% from the second to fourth years, 50% from the fifth to seventh years, and 25% from the eighth to tenth years.

This initiative is designed to provide relief to an estimated 350,000 to 400,000 young workers in Portugal, where the average annual salary is around €20,000. The government estimates that the program will cost €645 million in 2025. The plan replaces a previously proposed 15% tax cap for young people, which would have been costlier at €1 billion.

Portugal has long struggled with a youth exodus due to low wages and poor working conditions. According to the Emigration Observatory, about 30% of the country’s youth—roughly 850,000 people aged 15 to 39—have left for better opportunities abroad. Youth unemployment remains alarmingly high at 22%, nearly four times the national average of 6.1%.

Prime Minister Montenegro emphasized the need for young people to find opportunities within Portugal, aiming to prevent them from leaving their families and friends for economic reasons. In addition to tax cuts, the government is working to ease the housing crisis by exempting young homebuyers from certain municipal taxes, stamp duty, and fees.

Portugal's housing challenges, worsened by deregulation and efforts to attract foreign investment post-2008, have led to widespread protests against rising rents and property prices. The government has pledged a €2 billion housing package and plans to build 33,000 homes by 2030.

If Montenegro's budget fails to pass through parliament by the end of November, the country could face its third snap election in three years. His Democratic Alliance party holds 80 of the 230 seats, falling short of a majority, followed by the Socialist Party with 78 seats and the far-right Chega Party with 50 seats.

Montenegro has expressed confidence in his government’s ability to pass the budget, stressing the need for all political players, including the opposition, to act responsibly.