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The Portuguese government is seeking to become a low-tax haven for young people with plans to offer under-35s a decade of tax breaks.
The centre-right government of Luís Montenegro plans to scrap a proposed 15 per cent cap on income tax for people between 18 and 35 and replace it with a progressive scheme.
Under the proposal, young people earning up to €28,000 (£23,500) a year would be completely exempted from the tax in the first year of work.
The tax burden would then gradually increase over ten years. People would be exempted from 75 per cent of the tax from the second to the fourth year, by half between the fifth and the seventh and 25 per cent from the eighth to the 10th year.
According to the Social Democratic leadership, the measures could help up to 400,000 young people struggling with rising costs and dissuade them from emigrating to other countries.
The tax relief would also apply to foreign workers.
In recent years, Portugal has become an attractive destination for foreigners fleeing expensive rents and cold weather.
In a bid to attract foreign money, the country issued “golden visas” offering residence permits in exchange for buying properties worth €500,000 or more and it introduced a tax-saving “non-habitual residency scheme” for non-nationals.
However, the increase in foreigners to cities like Lisbon has contributed to a rise in property prices, it has been claimed.
The lack of affordable housing sparked widespread protests in the summer across the country where the average annual salary is around €20,000 (£17,000) and income tax rates range from 13 to 48 per cent.
But Mr Montenegro has promised that his government would “give young people the future they deserve” with his proposed budget plans.
In May, he said: “We need young Portuguese people to seize their skills and put them to work on projects and work for the country.”
The government believes the measures would cost €645million in 2025.
Despite the financial cost, youth minister Margarida Balseiro Lopes said: “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.”
But the ambitious budget could be hindered by the main opposition before it even sees the light.
When presented in parliament last week, Mr Montenegro’s government and the Socialist Party could not reach a deal over the upcoming budget.
The prime minister insisted it is his “deep conviction” that the budget would pass, ruling out a potential crisis. However, he will have to convince MPs before the vote on the budget takes place on 31 October.
