However, recent tax incentives proposed by the Portuguese government for young workers—potentially offering a temporary 100% income tax exemption in certain cases—along with assistance for housing, are prompting him to reconsider his plans.
“Previous administrations neglected the needs of young people,” stated Monteiro, 23, who is pursuing a degree in engineering and industrial management at the Higher Technical Institute in Lisbon. “The country requires our skills, and we wish to remain, but we need to see the government taking actionable steps to support us.”
Monteiro specifically points to the challenges of purchasing or renting a home during a housing crisis exacerbated by an influx of affluent foreigners attracted by favorable residency options and tax incentives. He remains uncertain whether the government’s new initiatives will suffice.
“Some of my friends are now working abroad and earning significantly higher salaries... along with better career advancement prospects,” he remarked. “I have some reservations about the job opportunities available to me here in Portugal.”
Portugal is the latest nation in Europe to address the issue of brain drain, which hampers its economic growth. The proposed tax breaks for young workers, currently under consideration in parliament, are set to take effect next year and could benefit approximately 400,000 young individuals at an annual cost of 525 million euros.
The migration of talent to wealthier northern countries is a challenge faced by Portugal and several other nations in southern and central Europe, as workers capitalize on the freedom of movement within the EU.
Countries like Italy have implemented various strategies to mitigate this exodus, with varying degrees of success. This trend not only intensifies regional labor shortages but also deprives less affluent countries of tax revenue, presenting yet another challenge for the EU as it strives to enhance its sluggish economic growth while addressing demographic decline.
Donald Trump's recent election victory in the United States has heightened concerns regarding potential trade tariffs on European exports, which could be set at a minimum of 10%. Economists warn that such tariffs could exacerbate Europe's sluggish economic growth, potentially leading to a full-blown recession.
According to the Emigration Observatory, approximately 2.3 million individuals born in Portugal, representing 23% of the country's population, currently reside abroad. This figure includes around 850,000 Portuguese citizens aged 15 to 39, accounting for roughly 30% of the youth demographic and 12.6% of the working-age population.
Even more alarming is the statistic that nearly 40% of the 50,000 graduates from universities and technical colleges emigrate annually, as reported by a study conducted by Business Roundtable Portugal and Deloitte, based on official data. This trend results in significant financial losses for Portugal, amounting to billions of euros in foregone income tax revenue and social security contributions.
DEMOGRAPHIC CRISIS
“This is not a country for young people,” stated Pedro Ginjeira do Nascimento, executive director of Business Roundtable Portugal, which represents 43 of the largest companies in a nation of 10 million. “Portugal is facing a genuine demographic crisis, as it struggles to create an environment conducive to retaining and attracting young talent.”
Internal migration within the European Union is influenced by wage disparities among member states. Many economic migrants seek improved benefits, such as pensions and healthcare, as well as less rigid hierarchical structures that empower junior employees with greater responsibilities.
There are growing concerns regarding the long-term sustainability of Europe’s economic model, particularly in light of its rapidly aging population and its inability to capture significant shares of emerging high-growth markets, including technology and renewable energy.
In September, former European Central Bank president Mario Draghi presented a series of reform proposals aimed at enhancing local innovation and investment, warning that the region could face a “slow agony” of decline if it fails to compete more effectively.
Eszter Czovek, 45, and her husband are relocating from Hungary to Austria, where the average hourly wage is 40.9 euros ($29.95), significantly higher than Hungary's 12.8 euros per hour, marking the largest wage disparity between neighboring EU countries.
By early 2024, the number of Hungarians residing in Austria had risen to 107,264, up from just 14,151 at the time Hungary joined the EU. Czovek’s husband, employed in construction, received a job offer in Austria, while she has experience in media and accounting with various multinational companies. She cited improved salaries, pensions, working conditions, and healthcare as key reasons for their move. Additionally, she expressed concerns about the political climate in Hungary, fearing it may follow Britain in exiting the EU.
Reflecting on the political changes since the 1989 regime shift, Czovek remarked, “After 30 years, we are still waiting for the miracle that will allow us to catch up with Austria.”
According to data from Eurostat, labor costs per hour in the European Union were illustrated in a recent Reuters graphic. Another graphic highlighted the number of EU citizens with college degrees residing in other EU countries.
Post-Brexit, the Netherlands has emerged as a favored destination for Portuguese professionals, with Germany and Scandinavian nations also attracting talent. Many Europeans continue to migrate to the United States for better employment opportunities, with approximately 4.7 million living there in 2022, although this figure has seen a long-term decline since the 1960s, as reported by the Migration Policy Institute.
In 2023, 4,892 Portuguese individuals moved to the Netherlands, surpassing the number who relocated to Britain for the first time, which had received 24,500 Portuguese migrants in 2019. Back in Portugal, residents contend with the eighth-highest tax burden in the OECD, while property prices have surged by 186% and rents by 94% since 2015, according to property experts at Confidencial Imobiliario.
In 2023, a single individual in Portugal without children had an average net income of 16,943 euros, while in the Netherlands, the figure was significantly higher at 45,429 euros, as reported by Eurostat.
To address this disparity, Portugal is implementing a tax exemption for individuals under 35 who earn up to 28,000 euros annually, offering a full exemption during their first year of employment. This benefit will gradually decrease to a 25% deduction between the eighth and tenth years of employment.
Additionally, young homebuyers will be exempt from transaction taxes and stamp duty on their first property purchase, and they will have access to state-backed loans and rental subsidies.
Cabinet Minister Antonio Leitao Amaro emphasized in a Reuters interview that the government is crafting a comprehensive strategy aimed at addressing the primary reasons young people leave the country.
Leitao Amaro acknowledged uncertainty regarding the effectiveness of these tax incentives but stressed the necessity for the new government, which took office in April, to pursue innovative solutions. He warned that without ambitious action, the current trends would persist in Portugal.
In contrast, the Italian government has experienced challenges with similar tax incentives, which have proven to be expensive and susceptible to fraud. Earlier this year, Italy significantly reduced its own program, which was resulting in a loss of 1.3 billion euros in tax revenue, despite its success in attracting tech professionals like Alessandra Mariani back to the country.
Prior to 2024, individuals returning to Italy were eligible for a 70% tax reduction over a five-year period, with the possibility of a five-year extension under certain conditions. However, the government now intends to implement a more focused program aimed at attracting specific skill sets, following a disappointing response that saw only 1,200 teachers and researchers return—professions where Italy is particularly lacking.
Mariani noted that these incentives played a crucial role in her decision to relocate back to Milan in 2021, as they allowed her to sustain the same quality of life she had in London. “If the opportunity had been the same without the incentives, I would not have made the move,” stated Mariani, who is currently employed at the Italian division of the same major technology firm.
With her tax benefits set to expire by 2026 unless she purchases a home or has a child, Mariani is now facing a potential salary reduction and is once again considering leaving.