Portugal’s economic potential has been hampered by the brain drain the country has suffered in the wake of the financial crisis of the early 2010s. The new government led by prime minister Luís Montenegro is now trying to reverse this trend by introducing tax breaks and other incentives making it easier for young talent to flourish in the country. Set to come into effect on January 1, these measures are a stepping stone in the government’s vision to shore up growth by leveraging innovation and economic diversification, as finance minister Joaquim Miranda Sarmento elaborates. 

Q: What’s the rationale behind the new incentives? 

A: We need to attract human capital and young people to work in our economy — both those who graduate from universities, as well as those who don’t have a degree. In order to do so, we are reducing income taxes for people under 35 years of age, regardless of their qualifications (those aged 35 and under who earn up to €28,000 would pay no income tax for the first year; their tax bill would then increase over 10 years). 

We're also providing tax breaks on the purchase of a first house, also for people under 35. This set of measures is a first boost to the income of young people. 

Q: What other steps are you taking to attract talent? 

A: We’ll reintroduce the non-residents tax regime, which will allow highly-skilled workers that come to work for firms that are already operating in Portugal, or firms that are investing in Portugal, to have a 10-year period during which they will pay a flat rate of 20% on their income tax. 

Q: The government assumed office in April. What are its economic policy priorities? 

A: We need to increase the value added of our products and services. The exports of services have already increased substantially, especially technological services. We need to increase our efforts in technology, research and development and sustainability. The deployment of renewables has already increased strongly in Portugal over the past 15 years. That's the world ahead. This country will only grow if it’s able to combine high value added with more technology and innovation, and a strong diversification of the economic sectors.

Q: Most European countries are dealing with a very constrained fiscal and financial position. What are your projections on that front? 

A: We forecast a fiscal surplus for 2025. With economic growth, that will allow us to continue to reduce public debt (which the IMF expects to stand at 94.4% of gross domestic product at end-2024, down from a peak of 134.9% in 2020).

We need to continue on that path so that if there is any turbulence in the financial markets, especially in the sovereign debt markets, we are in a comfortable position. We know that there are dangers ahead of us, and that’s why we are maintaining a fiscal surplus, despite the fact that we are reducing taxes and improving public services. 

Q: What dangers are you referring to? 

A: Geopolitical tensions may continue to rise as the outlook on Ukraine, the Middle East, and other areas affected by such tensions is unclear.

The fiscal balance in some large European countries is difficult. Some large countries are running high deficits and seeing their public debt increase — that could create tensions in the financial markets. And who knows whether we will face another pandemic? The levels of uncertainty and downside risks are much higher than they were 10 years ago.

The interview has been edited for brevity and clarity. 

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This article first appeared in the December 2024/January 2025 print edition of fDi Intelligence