The Portugal state budget for 2024 is currently working its way through parliament. Nothing is yet finalised, and it’s important to note that it’s far from unusual for amendments to make their way into the final legislation. However, with the full text of the budget available to the public, it’s already possible to gain a sense of what’s in store.
In this article, we look at the planned measures contained within the Portugal state budget. We will give a particular focus on how changes could impact international residents.
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Portugal State Budget 2024: the key figures
We breakdown the latest Portugal Budget.
Anybody who has followed the fortunes of Portugal since the financial crisis will likely notice the extent to which the country has turned things around. Portugal expects to run a budget surplus of 0.8% for 2003 and a surplus of 0.2% in 2024. This is described by The Portugal News as “the best budget balance in the history of democracy”.
It’s a notable change from a deficit of almost 10% back in the dark days of 2009. Similarly, the country’s public debt ratio is predicted to drop to 98.9%. This is a significant fall from the 112.4% recorded for 2022 in the aftermath of Covid lockdowns.
Despite these relatively positive figures, Portugal isn’t immune to the headwinds facing many nations at the time of writing.
Like the UK, Portugal has been working to reduce inflation. The Portuguese government now expects this to reduce to 3.3% in 2024. That said, the crisis in Israel wasn’t foreseen when the budget was put together. Further global economic shocks could well be on the way.
Finally, the government expects to see economic growth of 2.2% for 2023, and 1.5% for 2024.
Budget measures
With the headlines out of the way, let’s look at what financial changes are in store for residents of Portugal.
The first is some substantial tweaks to income tax rates. The plan is for some tax thresholds to be raised, with income tax rates reduced in parallel. For example, the proposed threshold at which income tax kicks in will likely be raised to €7,703 (from €7,479), with the lowest income tax rate dropping from 14.5% to 13.25%.
Similarly, rates for higher earners could drop, with higher thresholds taking effect. The plan is for the bottom five tax tiers to all change in this way.
Meanwhile, the Portugal state budget for 2024 proposes to increase the country’s minimum wage by 7.9%. This takes it from €760 to €820 per month. While this may seem low to expats coming from countries in norther Europe, it is of course worth remembering the notably lower cost of living in Portugal.
The changes above are intended to reduce the tax burden for workers in Portugal. Many could find themselves clearing several hundred Euros extra each year, after tax.
In other news, the state pension in Portugal is projected to rise by an average of 6.2%
Other proposals include stepped tax waivers for youngsters entering the workforce for the first time, a considerable expansion to free kindergarten funding, and a large increase in budget for the country’s state healthcare system.
The End of NHR?
Will taxes increase in Portugal?
Unfortunately, the money for these measures must come from somewhere. In a blow to those seeing Portugal as a “tax break” destination, an unwelcome change is the proposed end to the popular “Non-Habitual Resident” tax scheme.
The NHR scheme has allowed many foreign residents to earn money from overseas without being liable for Portuguese income tax (for a period of ten years). They’ve also benefitted from a flat rate on Portugal-sourced income.
Unfortunately, the plan is for this scheme to end from the start of 2024. In its wake will be an updated Non Habitual Resident program that’s open to a vastly reduced pool of people, notably professors and researchers.
However, all is not lost for those seeking beneficial tax arrangements in Portugal. A new tax regime for new residents may take effect, offering a 50% exemption on income tax. This would be valid for five years, for both freelance and employment income, with no requirement for that income to be related to a specific “value added” field.
Implications and Advice for International Residents
Anybody planning to move to Portugal is advised to keep an eye on the progress of the 2024 state budget. Certain areas are likely to prove contentious, so it’s quite possible that significant amendments will be made.
A combination of the changes to NHR and the new income tax thresholds will likely result in some specific and significant changes to residents’ tax burdens and the money that stays in their pocket. This makes it more important than ever to seek advice of a professional accountant, who can make projections based on individual situations.
A small detail worth taking into account is the new (higher) Portuguese minimum wage. The Portuguese government bases its income thresholds for visas on a multiple of the minimum wage. As such, these thresholds will likely rise once the budget is signed off.
Finally – for UK retirees – it’s worth noting that thanks to the “triple lock”, UK state pensions will likely increase by 8.5% in 2024. This is a considerably larger increase than the proposed rise in Portuguese state pensions. This may help, somewhat, to make up the difference in a tax burden that does seem – on balance – set to grow in the years ahead.
All of this said, it’s crucial to remember than Portugal’s low cost of living means that it’s still a country where people can live a great life with an economical budget. However, should the budget be voted through, Portugal’s “tax haven” status may begin to dwindle.
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