The Public Finance Council (CFP) emphasizes that, despite a fiscal surplus of 0.7% of GDP in 2024, fiscal policy remained expansionary and countercyclical, which could jeopardize the sustainability of public finances in the future. The positive balance was driven largely by the exceptional performance of the Pension Funds and the Regional and Local Administration. However, the deterioration of the Central Administration’s balance, which recorded a deficit of 1.5% of GDP, and the sharp growth in personnel and social benefit spending indicate lasting costs that could put pressure on the budget. Public revenue, while robust, grew unevenly, particularly for ICMS (Tax on Goods and Services) and IRPJ (Corporate Income Tax), and the tax burden reached 35.6% of GDP. The CFP warns that, in 2026, the country is expected to return to deficits—estimated at 1% of GDP—and public debt is unlikely to resume its downward trend, jeopardizing compliance with European fiscal targets.
As part of the State Budget for 2025, the Portuguese government introduced a proposal that offers significant tax benefits aimed at young people up to 35 years old. This set of measures, reflecting a strategy to encourage the retention of young talent in Portugal, seeks to combat emigration and create better conditions for the settlement of skilled labor in the country.
According to the proposal, young people entering the job market for the first time, with annual incomes below 28,000 euros, will be fully exempt from paying the Personal Income Tax (IRS) during the first year of work. In subsequent years, a reduced tax rate will be applied progressively, offering considerable fiscal relief and greater savings capacity in the initial stages of their careers.
The government emphasizes that this measure aims to alleviate the tax burden on young workers and provide them with greater financial security during a phase of life where they face challenges such as housing demands, career beginnings, and the possibility of starting a family. The reduction in tax burdens will thus allow for greater flexibility in personal investments and contribute to improving the purchasing power of this segment of the population.
Furthermore, this fiscal policy is part of a broader plan to retain talent in Portugal and mitigate the negative effects of the emigration of young, qualified individuals to other countries—a phenomenon that has affected the labor market and economic growth in the country over the past decades. By creating a more attractive fiscal environment, the government hopes not only to retain skilled workers but also to attract young Portuguese emigrants who wish to return.
In summary, the tax benefits proposed in the State Budget for 2025 are a strategic attempt to create more favorable conditions for young people in Portugal, promoting a more welcoming economic environment and ensuring that the new generation has opportunities to thrive in the country.
