Portugal's Bold Budget: Balancing Tax Cuts and Economic Growth

Portugal's centre-right government introduces a new budget with growth projections and a small surplus. Notable changes include tax cuts for youth and businesses, wage increases in the public sector, and strategies to curb youth emigration. The budget must pass to avoid a potential government collapse.

On Thursday, Portugal's centre-right minority government unveiled its first budget, forecasting modest economic growth alongside a slight surplus, despite implementing tax reductions for young people and businesses and increasing public sector wages.

Finance Minister Joaquim Miranda Sarmento presented the budget in parliament, incorporating concessions to the opposition such as a limited corporate tax rate cut to 20% to prevent a political standoff.

Failure to approve the budget could topple the government, risking a third snap election within three years. The budget predicts a 2.1% economic growth in 2025, following a 1.8% expansion this year, and aims for a 0.3% GDP surplus, slightly down from 0.4% in 2024.

The proposal introduces significant measures to retain young professionals, offering a 100% tax exemption in the first work year, gradually decreasing to 25% between years eight and ten for individuals under 35 earning up to 28,000 euros annually.

This measure seeks to address emigration issues, as data from the Emigration Observatory indicates approximately 850,000 youths have emigrated for better job prospects. Negotiations with the Socialist Party led to revising an initial 15% income tax cap for young adults to a progressive tax scheme.

(With inputs from agencies.)