Is Portugal the solution to the housing crisis?

It used to be that heading to the Algarve to avoid tax was only the prerogative of the Irish rich. Now it looks like things are changing. The Portuguese have come up with an ingenious wheeze to stem the exodus of its young, educated workforce: don’t charge people under 35 income tax.
The country’s centre-right minority government has included the measure in its budget for 2025. It would exempt under 35s earning less than €28,000 from income tax. They would pay no income tax during their first year of work and would gradually start to pay it over the following 10 years. The measure will cost the Portuguese exchequer €650 million a year or 0.2 per cent of GDP.
Whether the measure makes it into law remains to be seen. Portugal’s parliament has 50 days to consider the budget, which was unveiled last week.
But the intent is clear. According to Reuters, who quote the Emigration Observatory, about 850,000 people aged between 15 and 39 – or 30 per cent – have left Portugal at some point and are living abroad due to poor working conditions and low wages.
Portugal’s youth minister, Margarida Balseiro Lopes, argues “the cost to the country of having the most qualified generation ever, fleeing and leaving and emigrating, is incomparably higher than the financial cost of the measure”.
The International Monetary Fund (IMF) is not mad about the idea, warning that the impact of age-based preferential tax rates on emigration is “uncertain”.
Not everyone in Portugal is crazy about the idea either and there have been recent protests over spiralling housing costs driven in part by policies aimed at attracting wealthy foreigners to live in Portugal.
Citizens of other EU countries would be eligible for the tax break, and if it does make it into law you would have to imagine some young Irish people would be tempted. So how do things stack up tax wise?
Very conveniently the Citizen’s Information website gives a break down of how much tax an Irish person earning €28,000 pays. Joan, the fictional Irish taxpayer, paid €1,850 a year in income tax and €423.62 in the form of the Universal Social Charge in 2024. The case study doesn’t include PRSI but according to PWC’s income tax calculator she would pay €1,127 in PRSI. Joan’s take home is €24,599.
According to the iCalculator site Joana (Joan’s fictional Portuguese equivalent) takes home €19,639. This is after social security contributions of €3,080 and income tax of €5,280. When you add back the income tax her take home is €24,919.
Portuguese Joana’s disposable income is a comparable to Irish Joan, but her money goes a lot further. Ireland has one of the highest costs of living in the EU – at 140 per cent of the EU average – while Portugal has one of the lowest at 87.5 per cent of the average, although it’s rising.
When you look at housing the difference is even more stark. Property in Portugal costs on average €1,596 per square meter, according to the Global Property Guide. You would have to move to Longford or Donegal to get those prices in Ireland according to the Ipav Residential Property Price Barometer.
You might, however, be able to avail of the Help to Buy scheme if you are a first-time buyer looking to purchase or build a new house or apartment. You can get your last four years income tax refunded up to a maximum of €30,000.
According to the Revenue figures for 2022, the most recent ones available, single men pay an average of €4,800 a year in income tax, while single women pay about €3,800. Given that they make up the cohort most likely to be buying a home either separately or along with a partner, this availing of Help to Buy amounts to paying no income tax for four years. The net effect is not that different from Portugal’s income tax plan.
The IMF were not that enamoured of the Irish plan either when it was launched in 2003. They argued that it would only add to house price inflation. They appear to have been proved correct.
The two plans have more in common than IMF disapproval. They both smack of desperation. In both cases Governments are tinkering around with the tax system to try to alleviate the impact of an intractable long-term problem. They may end up doing more harm than good.
In Ireland’s case it is the property permacrisis, which has deep structural roots going back to the collapse of the Irish banking system in 2012 and includes a broken planning system and an overheating economy.
Portugal’s structural problems, according to the OECD, include skill shortages and a projected decline in the working-age population. The emigration of its well educated youth is part of this.
There is an obvious symmetry to these problems but it is unlikely that Ireland’s adversity will be Portugal’s opportunity. The prospect of thousands of young Irish people upping sticks and moving there for cheap housing seems farfetched despite the obvious attractions. Not least because of the language barrier. But you can’t say you wouldn’t be tempted.