Economic Sustainability
#20Key Findings
In the category of economic sustainability, Portugal falls into the lower-middle ranks (rank 20).
Portugal has aligned circular economy policies with European guidelines, but implementation has been slow. Realization of a national infrastructure investment plan is behind schedule. The energy system is one of Europe’s most fully decarbonized, with coal use having been phased out by 2022. The target of 80% of energy from renewables may be reached early, by 2026.
Unemployment rates have fallen substantially in recent years, but youth unemployment rates remain problematic. Employment policy focuses especially on this demographic, with mixed success. Structural unemployment is a concern, with educational offerings not well aligned with evolving workforce needs.
Portugal’s income tax system is progressive, but the regressive VAT tax rates are high. While environmental tax revenues are substantial, they mostly come from taxes on oil. Budgetary consolidation has allowed for significant deficit reductions and even a budget surplus in 2023. Overall debt has been reduced to slightly under 100% of GDP.
Portugal has aligned circular economy policies with European guidelines, but implementation has been slow. Realization of a national infrastructure investment plan is behind schedule. The energy system is one of Europe’s most fully decarbonized, with coal use having been phased out by 2022. The target of 80% of energy from renewables may be reached early, by 2026.
Unemployment rates have fallen substantially in recent years, but youth unemployment rates remain problematic. Employment policy focuses especially on this demographic, with mixed success. Structural unemployment is a concern, with educational offerings not well aligned with evolving workforce needs.
Portugal’s income tax system is progressive, but the regressive VAT tax rates are high. While environmental tax revenues are substantial, they mostly come from taxes on oil. Budgetary consolidation has allowed for significant deficit reductions and even a budget surplus in 2023. Overall debt has been reduced to slightly under 100% of GDP.
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Graph View
How committed is the government to driving the transition toward a circular economy?
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9
9
The government is clearly committed to transitioning to a circular economy.
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7
6
7
6
The government is largely committed to transitioning to a circular economy.
5
4
3
4
3
The government is somewhat committed to transitioning to a circular economy.
2
1
1
The government is not at all committed to transitioning to a circular economy.
Portugal has made significant progress in its legislative and planning framework, particularly following the introduction of Circular Economy Action Plans (CEAPs) since 2017. The country has effectively implemented national policies promoting the circular economy, ensuring alignment with European Commission guidelines and overarching climate policies (Geerken et al., 2022). These national policies are underpinned by green taxation, voluntary agreements, and frameworks such as the Portugal 2020 environmental network. They extend their influence to regional and sectoral levels. Support mechanisms include the Environmental Fund, the Fund for Technological Innovation and Circular Economy, and the Portugal 2020 framework.
This policy direction is encapsulated in a comprehensive strategy devised for the 2017 – 2020 period (not yet updated as of 2024) known as the Action Plan for Circular Economy (APCE). As outlined by the Ministry of Environment in 2017, the APCE strategy sets forth clear goals, indicators, and targets for the years 2030 and 2050. It is further detailed in sector-specific plans such as the strategic plan for urban waste management for 2030 (see Presidência do Conselho de Ministros, 2030).
A critical shortcoming is the monitoring of the strategy and the lack of effective interministerial coordination. Although the circular economy strategy falls within the purview of the Ministry of Environment, specifically under the Portuguese Environment Agency (Agência Portuguesa do Ambiente), it inherently requires collaboration across various government departments. To bolster interministerial coordination, governance of the APCE was envisaged to be overseen by an Interministerial Committee for Air and Climate Change (CIAAC, now known as the Climate Action Commission) and an APCE coordination group that includes representatives from 12 ministries and local authorities. Despite this structure, these coordinating bodies have not been effective in monitoring the progress of the APCE.
Furthermore, an examination of recent data uncovers some concerning trends in the domain of the circular economy. A comprehensive study on environmental performance by the OECD in 2023 indicates that Portugal is trailing in terms of circular economy implementation (OECD, 2023). This shortfall is partly due to the fact that municipal waste generation increased at a faster pace than GDP until 2019 – stabilizing in 2020 – resulting in Portugal having one of the highest landfilling rates. Additionally, data from the European Environment Agency positions Portugal among the European countries with the lowest municipal recycling rates.
Citations:
Ministry of Environment. 2017. “Leading the Transition: Action Plan for Circular Economy Portugal (2017-20).” https://eco.nomia.pt/contents/ficheiros/paec-en-version-4.pdf
Presidência do Conselho de Ministros. 2023. Resolução do Conselho de Ministros 30/2023 Plano Estratégico para os Resíduos Urbanos 2030. https://files.diariodarepublica.pt/1s/2023/03/06000/0000700139.pdf
OECD. 2023. OECD Environmental Performance Reviews: Portugal 2023. Paris: OECD Publishing. Available at https://doi.org/10.1787/d9783cbf-en
Eurostat. (n.d.). “Municipal waste statistics.” https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Municipal_waste_statistics
European Environment Agency. n.d. “Waste Recycling in Europe.” https://www.eea.europa.eu/en/analysis/indicators/waste-recycling-in-europe
Geerken, T., Manoochehri, S., and Di Francesco, E. 2022. Circular Economy Policy Innovation and Good Practice in Member States. European Environment Agency. https://www.eionet.europa.eu/etcs/etc-ce/products/draft-report-for-dg-env_final.pdf
This policy direction is encapsulated in a comprehensive strategy devised for the 2017 – 2020 period (not yet updated as of 2024) known as the Action Plan for Circular Economy (APCE). As outlined by the Ministry of Environment in 2017, the APCE strategy sets forth clear goals, indicators, and targets for the years 2030 and 2050. It is further detailed in sector-specific plans such as the strategic plan for urban waste management for 2030 (see Presidência do Conselho de Ministros, 2030).
A critical shortcoming is the monitoring of the strategy and the lack of effective interministerial coordination. Although the circular economy strategy falls within the purview of the Ministry of Environment, specifically under the Portuguese Environment Agency (Agência Portuguesa do Ambiente), it inherently requires collaboration across various government departments. To bolster interministerial coordination, governance of the APCE was envisaged to be overseen by an Interministerial Committee for Air and Climate Change (CIAAC, now known as the Climate Action Commission) and an APCE coordination group that includes representatives from 12 ministries and local authorities. Despite this structure, these coordinating bodies have not been effective in monitoring the progress of the APCE.
Furthermore, an examination of recent data uncovers some concerning trends in the domain of the circular economy. A comprehensive study on environmental performance by the OECD in 2023 indicates that Portugal is trailing in terms of circular economy implementation (OECD, 2023). This shortfall is partly due to the fact that municipal waste generation increased at a faster pace than GDP until 2019 – stabilizing in 2020 – resulting in Portugal having one of the highest landfilling rates. Additionally, data from the European Environment Agency positions Portugal among the European countries with the lowest municipal recycling rates.
Citations:
Ministry of Environment. 2017. “Leading the Transition: Action Plan for Circular Economy Portugal (2017-20).” https://eco.nomia.pt/contents/ficheiros/paec-en-version-4.pdf
Presidência do Conselho de Ministros. 2023. Resolução do Conselho de Ministros 30/2023 Plano Estratégico para os Resíduos Urbanos 2030. https://files.diariodarepublica.pt/1s/2023/03/06000/0000700139.pdf
OECD. 2023. OECD Environmental Performance Reviews: Portugal 2023. Paris: OECD Publishing. Available at https://doi.org/10.1787/d9783cbf-en
Eurostat. (n.d.). “Municipal waste statistics.” https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Municipal_waste_statistics
European Environment Agency. n.d. “Waste Recycling in Europe.” https://www.eea.europa.eu/en/analysis/indicators/waste-recycling-in-europe
Geerken, T., Manoochehri, S., and Di Francesco, E. 2022. Circular Economy Policy Innovation and Good Practice in Member States. European Environment Agency. https://www.eionet.europa.eu/etcs/etc-ce/products/draft-report-for-dg-env_final.pdf
Graph View
How committed is the government to updating and protecting critical infrastructure?
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9
9
The government is clearly committed to updating basic technical infrastructure.
8
7
6
7
6
The government is largely committed to updating basic technical infrastructure.
5
4
3
4
3
The government is somewhat committed to updating basic technical infrastructure.
2
1
1
The government is not at all committed to updating basic technical infrastructure.
The principal strategic document governing the update and protection of critical infrastructure in Portugal is the National Investment Plan 2030 (PNI 2030). Responsibility for critical infrastructure spans various entities within the corporate public sector, which may outsource investments to private firms or engage in public-private partnerships. Notably, Infraestruturas de Portugal (IP) plays a crucial role in overseeing infrastructure quality – including roads, railways, and telecommunications – and has a direct management role, especially in road maintenance. IP oversees the operations of IP Telecom – Serviços de Comunicações SA, a public corporation handling telecommunications infrastructure. Concerning railways, the strategic direction is outlined in the National Railway Plan (Plano Ferroviário Nacional), as stated by the XXII Constitutional Government of the Portuguese Republic (2022). CP – Comboios de Portugal, the public railway company, is primarily responsible for managing rail services and infrastructure. All these public corporations are subject to the joint oversight of the Minister of Finance and the Minister of Infrastructure.
The PNI 2030 emphasizes the need to strengthen territorial cohesion, enhance national infrastructure, and promote sustainable climate action through adaptation to climate change and increased infrastructure resilience. The Recovery and Resilience Plan (PRR) investments in this sector are directed predominantly toward railway and road improvements, as well as advancements in the digital and telecommunications sectors. However, the implementation of the PNI 2030 has fallen well short of what was planned, particularly with regard to rail infrastructure, reflecting prior delays (Cipriano 2023).
In this framework, developing robust telecommunications infrastructure is vital to ensuring secure internet access and enabling daily online activities. According to the Global Cybersecurity Index 2020 (GCI), Portugal has instituted various cybersecurity measures across legal, technical, and collaborative domains. However, there is potential for advancement in organizational strategies and capacity-building. Globally, Portugal ranks 14th on the GCI and holds the eighth position among European nations.
Citations:
Cipriano, C. 2023. “Governo falha metas PNI 2030 em projetos ferroviários.” Público online April 4. https://www.publico.pt/2023/04/04/economia/noticia/governo-falha-metas-pni-2030-projectos-ferroviarios-2044793
International Telecommunication Union (Development Sector). 2020. “Global Index Security 2020.” https://www.itu.int/dms_pub/itu-d/opb/str/D-STR-GCI.01-2021-PDF-E.pdf
XXII Governo República Portuguesa. n.d. “Plano Nacional de Investimentos 2030 (PNI 2030).” https://www.portugal.gov.pt/pt/gc22/comunicacao/documento?i=apresentacao-do-programa-nacional-de-investimentos-para-2030
XXII Governo República Portuguesa. 2022. “Plano Ferroviário Nacional.” https://pfn.gov.pt/wp-content/uploads/2022/11/plano-ferroviario-nacional-20221117.pdf
Governo de Portugal. 2023. “Projetos do PRR das Infraestruturas estão em andamento.” https://www.portugal.gov.pt/pt/gc23/comunicacao/noticia?i=projetos-do-prr-das-infraestruturas-estao-em-andamento
Infraestruturas de Portugal. n.d. “2030 Investment Plan (PNI 2030).” https://www.infraestruturasdeportugal.pt/pt-pt/planos-estrategicos
The PNI 2030 emphasizes the need to strengthen territorial cohesion, enhance national infrastructure, and promote sustainable climate action through adaptation to climate change and increased infrastructure resilience. The Recovery and Resilience Plan (PRR) investments in this sector are directed predominantly toward railway and road improvements, as well as advancements in the digital and telecommunications sectors. However, the implementation of the PNI 2030 has fallen well short of what was planned, particularly with regard to rail infrastructure, reflecting prior delays (Cipriano 2023).
In this framework, developing robust telecommunications infrastructure is vital to ensuring secure internet access and enabling daily online activities. According to the Global Cybersecurity Index 2020 (GCI), Portugal has instituted various cybersecurity measures across legal, technical, and collaborative domains. However, there is potential for advancement in organizational strategies and capacity-building. Globally, Portugal ranks 14th on the GCI and holds the eighth position among European nations.
Citations:
Cipriano, C. 2023. “Governo falha metas PNI 2030 em projetos ferroviários.” Público online April 4. https://www.publico.pt/2023/04/04/economia/noticia/governo-falha-metas-pni-2030-projectos-ferroviarios-2044793
International Telecommunication Union (Development Sector). 2020. “Global Index Security 2020.” https://www.itu.int/dms_pub/itu-d/opb/str/D-STR-GCI.01-2021-PDF-E.pdf
XXII Governo República Portuguesa. n.d. “Plano Nacional de Investimentos 2030 (PNI 2030).” https://www.portugal.gov.pt/pt/gc22/comunicacao/documento?i=apresentacao-do-programa-nacional-de-investimentos-para-2030
XXII Governo República Portuguesa. 2022. “Plano Ferroviário Nacional.” https://pfn.gov.pt/wp-content/uploads/2022/11/plano-ferroviario-nacional-20221117.pdf
Governo de Portugal. 2023. “Projetos do PRR das Infraestruturas estão em andamento.” https://www.portugal.gov.pt/pt/gc23/comunicacao/noticia?i=projetos-do-prr-das-infraestruturas-estao-em-andamento
Infraestruturas de Portugal. n.d. “2030 Investment Plan (PNI 2030).” https://www.infraestruturasdeportugal.pt/pt-pt/planos-estrategicos
Graph View
How committed is the government to fully decarbonizing the energy system by 2050?
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9
9
The government is clearly committed to transitioning to a decarbonized energy system.
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7
6
The government is largely committed to transitioning to a decarbonized energy system.
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3
4
3
The government is somewhat committed to transitioning to a decarbonized energy system.
2
1
1
The government is not at all committed to transitioning to a decarbonized energy system.
Portugal’s energy system is recognized as one of the most decarbonized within the European Union. By 2022, the country had successfully phased out coal from its energy mix and embarked on an ambitious path to secure 80% of its electricity from renewable sources by 2026. This would outpace its initial target by four years.
The strategic direction of Portugal in this area is guided by three pivotal documents: the Roadmap for Carbon Neutrality 2050, the National Plan for Energy and Climate 2021 – 2030, and the Climate Law (Lei 98/2021). These frameworks outline Portugal’s overarching strategy, which is further delineated into sector-specific objectives. The primary focus areas are energy, transportation, and industry, with explicit emission reduction targets set for 2030 and 2050.
Portugal’s energy portfolio features a renewable energy composition of 32%, significantly above the European Union average of 19%. To promote the shift toward renewable energy, the country has implemented various policies, including tax exemptions, subsidies, and quotas, with specialized incentives for the agricultural sector. While the adoption of renewable energy technologies is higher than average, the extent of tax exemptions is comparatively modest.
Within this framework, Portuguese energy policy establishes a clear foundation for achieving a fully decarbonized system by 2050.
Citations:
European Commission (EC). 2023. “State of the Energy Union 2023 Portugal.” https://energy.ec.europa.eu/system/files/2023-10/PT_SoEUr%20Fiche%202023.pdf
European Environment Agency (EEA). 2014. “Energy Support Measures and Their Impact on Innovation in the Renewable Energy Sector in Europe.” https://www.eea.europa.eu/publications/energy-support-measures
OECD. 2023. OECD Environmental Performance Reviews: Portugal 2023. OECD Publishing. https://doi.org/10.1787/d9783cbf-en
Governo de Portugal. 2019. “Roadmap for Carbon Neutrality 2050.” https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3d%3dBAAAAB%2bLCAAAAAAABACzMDexBAC4h9DRBAAAAA%3d%3d
Governo de Portugal. 2020. “Plano Nacional Energia e Clima 2021-2030.” https://www.portugalenergia.pt/setor-energetico/bloco-3
Lei de Bases do Clima. 2021. Diário da República n.º 251/2021, Série I. https://dre.pt/web/guest/pesquisa/-/search/170291204/details/maximized
The strategic direction of Portugal in this area is guided by three pivotal documents: the Roadmap for Carbon Neutrality 2050, the National Plan for Energy and Climate 2021 – 2030, and the Climate Law (Lei 98/2021). These frameworks outline Portugal’s overarching strategy, which is further delineated into sector-specific objectives. The primary focus areas are energy, transportation, and industry, with explicit emission reduction targets set for 2030 and 2050.
Portugal’s energy portfolio features a renewable energy composition of 32%, significantly above the European Union average of 19%. To promote the shift toward renewable energy, the country has implemented various policies, including tax exemptions, subsidies, and quotas, with specialized incentives for the agricultural sector. While the adoption of renewable energy technologies is higher than average, the extent of tax exemptions is comparatively modest.
Within this framework, Portuguese energy policy establishes a clear foundation for achieving a fully decarbonized system by 2050.
Citations:
European Commission (EC). 2023. “State of the Energy Union 2023 Portugal.” https://energy.ec.europa.eu/system/files/2023-10/PT_SoEUr%20Fiche%202023.pdf
European Environment Agency (EEA). 2014. “Energy Support Measures and Their Impact on Innovation in the Renewable Energy Sector in Europe.” https://www.eea.europa.eu/publications/energy-support-measures
OECD. 2023. OECD Environmental Performance Reviews: Portugal 2023. OECD Publishing. https://doi.org/10.1787/d9783cbf-en
Governo de Portugal. 2019. “Roadmap for Carbon Neutrality 2050.” https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3d%3dBAAAAB%2bLCAAAAAAABACzMDexBAC4h9DRBAAAAA%3d%3d
Governo de Portugal. 2020. “Plano Nacional Energia e Clima 2021-2030.” https://www.portugalenergia.pt/setor-energetico/bloco-3
Lei de Bases do Clima. 2021. Diário da República n.º 251/2021, Série I. https://dre.pt/web/guest/pesquisa/-/search/170291204/details/maximized
Graph View
To what extent do existing labor market institutions support or hinder the transition to an adaptive labor market?
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9
9
Labor market institutions are fully aligned with the goal of an adaptable labor market.
8
7
6
7
6
Labor market institutions are largely aligned with the goal of an adaptable labor market.
5
4
3
4
3
Labor market institutions are only somewhat aligned with the goal of an adaptable labor market.
2
1
1
Labor market institutions are not at all aligned with the goal of an adaptable labor market.
Portugal has achieved a consistently low unemployment rate in recent years, remaining below 10% even during the pandemic, with a rate of 6.1% in 2022 (PORDATA, 2023). Policies such as the simplified layoff scheme have contributed to this stability by helping companies manage short-term economic impacts. Furthermore, recent initiatives have been introduced to address contemporary needs and modernize the economic landscape.
Notably, the 2023 launch of the Green Skills & Jobs program aims to foster job creation in the context of accelerating the transition to energy efficiency. Additionally, the “Check-Training + Digital” measure supports workers’ development in digital skills through a €750 grant (IEFP, 2023). These programs are designed to promote employment retention, career advancement, skill enhancement, and preparedness for the digital transition across various sectors.
However, there is growing concern about structural unemployment in the near future. A misalignment is evident between company offerings and job market demands, particularly in light of rapid technological advances, including artificial intelligence. The disparity between current educational curricula and the evolving requirements of the workforce is apparent, with the level of workforce training deemed insufficient (Fundação José Neves 2023). From a business perspective, 48% of companies exhibit low digitalization, with less qualified workers and women underrepresented in digitally focused professions.
Recognizing that digitalization can enhance workers’ wages and boost company and national productivity, a funding initiative was launched in 2023 to support the digitalization of manufacturing and extractive industries. This initiative is backed by €60 million from the Recovery and Resilience Plan (RRP) (ECO, 2023). Additionally, the “Digital Commerce Accelerators” project was introduced to facilitate the digital transition of micro, small, and medium-sized commercial enterprises, accompanied by financial incentives for digitalizing business models. These efforts aim to adapt the Portuguese economy to the digital age, enhancing competitiveness and employment prospects.
Overall, Portugal’s labor market institutions are making strides in adapting to a changing economy; however, they face challenges in aligning workforce skills with evolving market demands and technological advancements.
Citations:
PORDATA. 2023. “Taxa de desemprego: total e por sexo (%).”
https://www.pordata.pt/portugal/taxa+de+desemprego+total+e+por+sexo+(percentagem)-550
Fundação José Neves. 2023. “Estado da Nação: Educação, Emprego e Competências em Portugal.” https://www.joseneves.org/estado-da-nacao-2023
IEFP. 2023. “Formação.” https://www.iefp.pt/formacao
ECO. 2023. “Concurso para apoiar digitalização da indústria com 60 milhões do PRR abre nos próximos dias.” ECO, November 15. https://eco.sapo.pt/2023/11/15/concurso-para-apoiar-digitalizacao-da-industria-com-60-milhoes-do-prr-abre-nos-proximos-dias/
Notably, the 2023 launch of the Green Skills & Jobs program aims to foster job creation in the context of accelerating the transition to energy efficiency. Additionally, the “Check-Training + Digital” measure supports workers’ development in digital skills through a €750 grant (IEFP, 2023). These programs are designed to promote employment retention, career advancement, skill enhancement, and preparedness for the digital transition across various sectors.
However, there is growing concern about structural unemployment in the near future. A misalignment is evident between company offerings and job market demands, particularly in light of rapid technological advances, including artificial intelligence. The disparity between current educational curricula and the evolving requirements of the workforce is apparent, with the level of workforce training deemed insufficient (Fundação José Neves 2023). From a business perspective, 48% of companies exhibit low digitalization, with less qualified workers and women underrepresented in digitally focused professions.
Recognizing that digitalization can enhance workers’ wages and boost company and national productivity, a funding initiative was launched in 2023 to support the digitalization of manufacturing and extractive industries. This initiative is backed by €60 million from the Recovery and Resilience Plan (RRP) (ECO, 2023). Additionally, the “Digital Commerce Accelerators” project was introduced to facilitate the digital transition of micro, small, and medium-sized commercial enterprises, accompanied by financial incentives for digitalizing business models. These efforts aim to adapt the Portuguese economy to the digital age, enhancing competitiveness and employment prospects.
Overall, Portugal’s labor market institutions are making strides in adapting to a changing economy; however, they face challenges in aligning workforce skills with evolving market demands and technological advancements.
Citations:
PORDATA. 2023. “Taxa de desemprego: total e por sexo (%).”
https://www.pordata.pt/portugal/taxa+de+desemprego+total+e+por+sexo+(percentagem)-550
Fundação José Neves. 2023. “Estado da Nação: Educação, Emprego e Competências em Portugal.” https://www.joseneves.org/estado-da-nacao-2023
IEFP. 2023. “Formação.” https://www.iefp.pt/formacao
ECO. 2023. “Concurso para apoiar digitalização da indústria com 60 milhões do PRR abre nos próximos dias.” ECO, November 15. https://eco.sapo.pt/2023/11/15/concurso-para-apoiar-digitalizacao-da-industria-com-60-milhoes-do-prr-abre-nos-proximos-dias/
To what extent do existing labor market institutions support or hinder the transition to an inclusive labor market?
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9
9
Labor market institutions are fully aligned with the goal of an inclusive labor market.
8
7
6
7
6
Labor market institutions are largely aligned with the goal of an inclusive labor market.
5
4
3
4
3
Labor market institutions are only somewhat aligned with the goal of an inclusive labor market.
2
1
1
Labor market institutions are not at all aligned with the goal of an inclusive labor market.
The IEFP (Instituto do Emprego e Formação Profissional), Portugal’s national public employment agency, offers various employment support programs for citizens and businesses. Its mission is to improve job creation and quality while reducing unemployment through active employment policies and professional training. These programs cater to diverse groups, including young individuals, those seeking to enhance their professional skills, and those at higher risk of labor market exclusion. To maintain eligibility for certain social benefits, beneficiaries must actively seek employment or engage in training sessions in collaboration with the IEFP.
A key objective of Portugal’s employment policy is to facilitate the entry of young people into the workforce, particularly those with adequate education and professional qualifications. To this end, specific programs like “ATIVAR.PT Internships” and “Active Youth Employment” have been developed, offering distinct approaches to youth employment (IEFP, 2023).
The actual results of these measures are mixed. Portugal has a comparatively low proportion of young people who are not in employment, education, or training (NEET), below the EU average and the EU target of 10% to be achieved by 2030 (Eurostat, 2023). Yet, youth unemployment remains very high – 19% in 2022 – and well above the EU average , unlike general unemployment. Moreover, this high youth unemployment would be even higher if not for elevated levels of emigration. A recent study found Portugal to have one of the highest emigration rates in Europe, particularly among the young, with over a quarter of people born in Portugal and aged between 15 – 39 residing abroad.
Also on a less positive note, Portugal ranks ninth out of 29 OECD countries in terms of financial disincentives for the unemployed to return to work at the national minimum wage. In some cases, accepting a job at the minimum wage could result in a loss of income exceeding 80% due to increased taxes or reduced benefits (OECD, 2023). Additionally, the OECD’s Going for Growth report from 2023 points out that resources allocated to active labor market policies and public employment services in Portugal are relatively low, suggesting a need for enhanced support in these areas.
Finally, in light of the changing work environment, especially post-pandemic, Portugal has updated regulations and rights for workers in hybrid work arrangements – a mix of in-person and remote work. This effort is part of the Decent Work Agenda, which aims to enhance working conditions and balance personal, family, and professional life for workers (Law 13/2023, DR 66/2023).
Citations:
IEFP. 2023. “Apoios.” https://www.iefp.pt/apoios
Eurostat. 2023. “Young people neither in employment nor in education or training.” https://ec.europa.eu/eurostat/statistics-explained/index.php?title=File:Vis2-young-people-neither-in-employment-nor-in-education-or-training_260523.png
Law n.º 13/2023. 2023. Diário da República n.º 66/2023, Série I de 2023-04-03.
https://diariodarepublica.pt/dr/legislacao-consolidada/lei/2023-211366691
Observatório da Emigração. 2023. Atlas da Emigração Portuguesa. Editora Mundos Sociais. Retrieved from https://observatorioemigracao.pt/np4/file/9573/Atlas_Emig_Port_EBOOK.pdf
OECD. 2023. “Economic Policy Reforms 2023 – Going for Growth.” https://www.oecd.org/publication/going-for-growth/2023
A key objective of Portugal’s employment policy is to facilitate the entry of young people into the workforce, particularly those with adequate education and professional qualifications. To this end, specific programs like “ATIVAR.PT Internships” and “Active Youth Employment” have been developed, offering distinct approaches to youth employment (IEFP, 2023).
The actual results of these measures are mixed. Portugal has a comparatively low proportion of young people who are not in employment, education, or training (NEET), below the EU average and the EU target of 10% to be achieved by 2030 (Eurostat, 2023). Yet, youth unemployment remains very high – 19% in 2022 – and well above the EU average , unlike general unemployment. Moreover, this high youth unemployment would be even higher if not for elevated levels of emigration. A recent study found Portugal to have one of the highest emigration rates in Europe, particularly among the young, with over a quarter of people born in Portugal and aged between 15 – 39 residing abroad.
Also on a less positive note, Portugal ranks ninth out of 29 OECD countries in terms of financial disincentives for the unemployed to return to work at the national minimum wage. In some cases, accepting a job at the minimum wage could result in a loss of income exceeding 80% due to increased taxes or reduced benefits (OECD, 2023). Additionally, the OECD’s Going for Growth report from 2023 points out that resources allocated to active labor market policies and public employment services in Portugal are relatively low, suggesting a need for enhanced support in these areas.
Finally, in light of the changing work environment, especially post-pandemic, Portugal has updated regulations and rights for workers in hybrid work arrangements – a mix of in-person and remote work. This effort is part of the Decent Work Agenda, which aims to enhance working conditions and balance personal, family, and professional life for workers (Law 13/2023, DR 66/2023).
Citations:
IEFP. 2023. “Apoios.” https://www.iefp.pt/apoios
Eurostat. 2023. “Young people neither in employment nor in education or training.” https://ec.europa.eu/eurostat/statistics-explained/index.php?title=File:Vis2-young-people-neither-in-employment-nor-in-education-or-training_260523.png
Law n.º 13/2023. 2023. Diário da República n.º 66/2023, Série I de 2023-04-03.
https://diariodarepublica.pt/dr/legislacao-consolidada/lei/2023-211366691
Observatório da Emigração. 2023. Atlas da Emigração Portuguesa. Editora Mundos Sociais. Retrieved from https://observatorioemigracao.pt/np4/file/9573/Atlas_Emig_Port_EBOOK.pdf
OECD. 2023. “Economic Policy Reforms 2023 – Going for Growth.” https://www.oecd.org/publication/going-for-growth/2023
To what extent do existing labor market institutions support or hinder the mitigation of labor market risks?
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9
9
Labor market institutions are fully aligned with the goal of protecting individuals against labor market risks.
8
7
6
7
6
Labor market institutions are largely aligned with the goal of protecting individuals against labor market risks.
5
4
3
4
3
Labor market institutions are only somewhat aligned with the goal of protecting individuals against labor market risks.
2
1
1
Labor market institutions are not at all aligned with the goal of protecting individuals against labor market risks.
In Portugal, a mandatory social insurance scheme automatically covers all eligible workers. Those not required to join can opt into the voluntary social insurance scheme, which is designed for national citizens of legal age who are fit for work. This scheme is particularly important for social volunteers, scholarship recipients, high-performance athletes, professional interns, and informal caregivers, as it offers them access to social security benefits. The system provides a range of benefits to mitigate various labor market risks, including unemployment, retirement, sickness, and disability.
Moreover, recent legislation has sought to expand the coverage of the Portuguese social security system, such as by criminalizing employers who did not report domestic service personnel, a development that took place in 2023.
For individuals who do not meet specific criteria for certain benefits, such as the minimum number of working years, the solidarity subsystem of social security offers means-tested social benefits. This subsystem is accessible to all national citizens and aims to ensure essential social rights, prevent and eradicate poverty and social exclusion, and provide assistance in situations of personal or family need. It also addresses social or economic imbalances resulting from deficiencies in the contributory social security system.
Additionally, workers and employers have collective representation structures, such as trade unions, to safeguard and promote their interests and rights. In Portugal, the current legal framework permits multiple worker representation structures, operating under principles of autonomy and independence. All workers, regardless of age or role, have the right to establish trade unions at any level to defend and enhance their socio-professional interests.
Citations:
Expresso. 2023. “Novas regras para o trabalho doméstico: saiba como calcular as contribuições sociais e quanto terá de pagar.” Expresso, May 12. https://expresso.pt/economia/trabalho/2023-05-12-Novas-regras-para-o-trabalho-domestico-saiba-como-calcular-as-contribuicoes-sociais-e-quanto-tera-de-pagar-9ce3906e
Moreover, recent legislation has sought to expand the coverage of the Portuguese social security system, such as by criminalizing employers who did not report domestic service personnel, a development that took place in 2023.
For individuals who do not meet specific criteria for certain benefits, such as the minimum number of working years, the solidarity subsystem of social security offers means-tested social benefits. This subsystem is accessible to all national citizens and aims to ensure essential social rights, prevent and eradicate poverty and social exclusion, and provide assistance in situations of personal or family need. It also addresses social or economic imbalances resulting from deficiencies in the contributory social security system.
Additionally, workers and employers have collective representation structures, such as trade unions, to safeguard and promote their interests and rights. In Portugal, the current legal framework permits multiple worker representation structures, operating under principles of autonomy and independence. All workers, regardless of age or role, have the right to establish trade unions at any level to defend and enhance their socio-professional interests.
Citations:
Expresso. 2023. “Novas regras para o trabalho doméstico: saiba como calcular as contribuições sociais e quanto terá de pagar.” Expresso, May 12. https://expresso.pt/economia/trabalho/2023-05-12-Novas-regras-para-o-trabalho-domestico-saiba-como-calcular-as-contribuicoes-sociais-e-quanto-tera-de-pagar-9ce3906e
Graph View
To what extent do existing tax institutions and procedures support or hinder adequate tax revenue flows?
10
9
9
The tax system is fully aligned with the goals of ensuring adequate tax revenues.
8
7
6
7
6
The tax system is largely aligned with the goals of ensuring adequate tax revenues.
5
4
3
4
3
The tax system is only somewhat aligned with the goals of ensuring adequate tax revenues.
2
1
1
The tax system is not at all aligned with the goals of ensuring adequate tax revenues.
In 2022, most OECD countries experienced a decline in the tax-to-GDP ratio (OECD, 2023). However, Portugal stood out as an exception, maintaining high levels of taxation on income and consumption, specifically at 36.5%. The government forecasts a further increase in the tax burden to 37.2% of GDP for 2023 (Ministry of Finance, 2023). If realized, this forecast would represent a rise compared to 2022 and establish a new historical peak. The government justifies this upward trend by citing inflation, increased job market dynamism (with more people employed), and the budgetary consolidation goals pursued by recent administrations. Nevertheless, Portugal’s tax-to-GDP ratio remains below the EU-27 average (Eurostat, 2023).
The high tax burden in Portugal discourages companies from investing and families from allocating their income toward savings or consumption. Consistent recommendations urge Portugal to reduce contextual business costs and establish a taxation framework that offers greater predictability for investment.
Despite recent progress, the Portuguese tax authority still faces significant challenges in addressing offshore wealth accumulation and sophisticated tax evasion schemes. Although Portugal has a Strategic Plan to Combat Fraud and Tax Evasion, more than half of the plan’s measures remain unimplemented. Notably, about 22% of Portugal’s GDP was held offshore in 2022 (EU Tax Observatory, 2023).
To combat tax evasion and money laundering, more proactive and effective on-the-ground supervision is needed. However, the Portuguese tax authority is currently stretched thin in terms of human resources. The Tax Workers’ Union has called for the immediate recruitment of an additional 2,000 employees and a reorganization of the entity’s operations to enhance efficiency (Dinheiro Vivo, 2023). This situation underscores the need for strengthened capacity and resources to effectively manage and enforce tax regulations.
Citations:
OECD. 2023. Revenue Statistics 2023: Tax Revenue Buoyancy in OECD Countries. Paris: OECD Publishing.
https://doi.org/10.1787/9d0453d5-enhttps://www.oecd.org/tax/revenue-statistics-2522770x.htm
Ministry of Finance. 2023. “Relatório do Orçamento do Estado 2024.”
https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3D%3DBQAAAB%2BLCAAAAAAABAAzNLY0NAQA8%2BjEBAUAAAA%3D
Eurostat. 2023. “Main National Accounts Tax Aggregates.”
https://ec.europa.eu/eurostat/databrowser/view/gov_10a_taxag/default/table?lang=en
EU Tax Observatory. 2023. “Offshore Financial Wealth Database.”
https://atlas-offshore.world/download-data/
Dinheiro Vivo. 2023. “Ana Gamboa: ‘Autoridade Tributária está num ponto de rutura extrema ao nível dos recursos humanos’.” Dinherio Vivo, September 23. https://www.dinheirovivo.pt/entrevistas/ana-gamboa-autoridade-tributaria-esta-num-ponto-de-rutura-extrema-ao-nivel-dos-recursos-humanos-17068466.html
The high tax burden in Portugal discourages companies from investing and families from allocating their income toward savings or consumption. Consistent recommendations urge Portugal to reduce contextual business costs and establish a taxation framework that offers greater predictability for investment.
Despite recent progress, the Portuguese tax authority still faces significant challenges in addressing offshore wealth accumulation and sophisticated tax evasion schemes. Although Portugal has a Strategic Plan to Combat Fraud and Tax Evasion, more than half of the plan’s measures remain unimplemented. Notably, about 22% of Portugal’s GDP was held offshore in 2022 (EU Tax Observatory, 2023).
To combat tax evasion and money laundering, more proactive and effective on-the-ground supervision is needed. However, the Portuguese tax authority is currently stretched thin in terms of human resources. The Tax Workers’ Union has called for the immediate recruitment of an additional 2,000 employees and a reorganization of the entity’s operations to enhance efficiency (Dinheiro Vivo, 2023). This situation underscores the need for strengthened capacity and resources to effectively manage and enforce tax regulations.
Citations:
OECD. 2023. Revenue Statistics 2023: Tax Revenue Buoyancy in OECD Countries. Paris: OECD Publishing.
https://doi.org/10.1787/9d0453d5-enhttps://www.oecd.org/tax/revenue-statistics-2522770x.htm
Ministry of Finance. 2023. “Relatório do Orçamento do Estado 2024.”
https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3D%3DBQAAAB%2BLCAAAAAAABAAzNLY0NAQA8%2BjEBAUAAAA%3D
Eurostat. 2023. “Main National Accounts Tax Aggregates.”
https://ec.europa.eu/eurostat/databrowser/view/gov_10a_taxag/default/table?lang=en
EU Tax Observatory. 2023. “Offshore Financial Wealth Database.”
https://atlas-offshore.world/download-data/
Dinheiro Vivo. 2023. “Ana Gamboa: ‘Autoridade Tributária está num ponto de rutura extrema ao nível dos recursos humanos’.” Dinherio Vivo, September 23. https://www.dinheirovivo.pt/entrevistas/ana-gamboa-autoridade-tributaria-esta-num-ponto-de-rutura-extrema-ao-nivel-dos-recursos-humanos-17068466.html
To what extent do existing tax institutions and procedures consider equity aspects?
10
9
9
The tax system is fully aligned with the goal of ensuring equity.
8
7
6
7
6
The tax system is largely aligned with the goal of ensuring equity.
5
4
3
4
3
The tax system is only somewhat aligned with the goal of ensuring equity.
2
1
1
The tax system is not at all aligned with the goal of ensuring equity.
Portugal has a progressive tax system for taxing income from work, meaning higher incomes are taxed at a higher average rate. However, the overall system penalizes workers and lower-income groups. This is because indirect taxes, such as VAT, are particularly high and have a greater impact on the income of the poorest.
To achieve budget consolidation, recent administrations have relied on indirect taxation by either maintaining high levels on certain indirect taxes, such as VAT, or raising rates on others. Although Portugal’s overall tax-to-GDP ratio in 2022 was below the EU-27 average, the country’s VAT-to-GDP ratio stood at 9.4%, surpassing the EU average of 7.5%. Notably, VAT and other indirect taxes are the primary sources of revenue for the Portuguese tax system, deviating from the norm observed in the EU. This substantial reliance on more regressive indirect taxation measures raises equity concerns. These taxes impose a higher effective tax rate on the poorest individuals, as they constitute a larger share of their income. Increasing indirect taxes while decreasing direct taxes, as has happened in recent years, has led to a reduction in the overall progressivity of the tax system.
A recent study suggests that Portugal’s tax system places a relatively low burden on wealth, in contrast to higher taxation on labor and consumption. This system positions Portugal as the third OECD country with the most significant disparity between the taxation of wages and dividends, underscoring its lack of effective measures to address the nation’s pronounced wealth inequality (Mergulhão, 2023). Despite the high progressivity of the Personal Income Tax (PIT) system, its impact is substantially diminished due to various “non-inclusion” options (“não englobamento”) and the multitude of available tax benefits.
Citations:
Eurostat. 2023. “Main National Accounts Tax Aggregates.”
https://ec.europa.eu/eurostat/databrowser/view/gov_10a_taxag/default/table?lang=en
Mergulhão, Alexandre. 2023. “A fiscalidade em Portugal.” https://causapublica.org/estudos/a-fiscalidade-em-portugal/
To achieve budget consolidation, recent administrations have relied on indirect taxation by either maintaining high levels on certain indirect taxes, such as VAT, or raising rates on others. Although Portugal’s overall tax-to-GDP ratio in 2022 was below the EU-27 average, the country’s VAT-to-GDP ratio stood at 9.4%, surpassing the EU average of 7.5%. Notably, VAT and other indirect taxes are the primary sources of revenue for the Portuguese tax system, deviating from the norm observed in the EU. This substantial reliance on more regressive indirect taxation measures raises equity concerns. These taxes impose a higher effective tax rate on the poorest individuals, as they constitute a larger share of their income. Increasing indirect taxes while decreasing direct taxes, as has happened in recent years, has led to a reduction in the overall progressivity of the tax system.
A recent study suggests that Portugal’s tax system places a relatively low burden on wealth, in contrast to higher taxation on labor and consumption. This system positions Portugal as the third OECD country with the most significant disparity between the taxation of wages and dividends, underscoring its lack of effective measures to address the nation’s pronounced wealth inequality (Mergulhão, 2023). Despite the high progressivity of the Personal Income Tax (PIT) system, its impact is substantially diminished due to various “non-inclusion” options (“não englobamento”) and the multitude of available tax benefits.
Citations:
Eurostat. 2023. “Main National Accounts Tax Aggregates.”
https://ec.europa.eu/eurostat/databrowser/view/gov_10a_taxag/default/table?lang=en
Mergulhão, Alexandre. 2023. “A fiscalidade em Portugal.” https://causapublica.org/estudos/a-fiscalidade-em-portugal/
To what extent do existing tax institutions and procedures minimize compliance and collection costs?
10
9
9
The tax system is fully aligned with the goal of minimizing compliance and collection costs.
8
7
6
7
6
The tax system is largely aligned with the goal of minimizing compliance and collection costs.
5
4
3
4
3
The tax system is only somewhat aligned with the goal of minimizing compliance and collection costs.
2
1
1
The tax system is not at all aligned with the goal of minimizing compliance and collection costs.
Portugal’s taxation system is often criticized for its complexity, partly due to the existence of over 500 tax benefits (Oliveira et al., 2019). The income tax system’s numerous “non-inclusive” options and diverse tax benefits contribute to this complexity and lack of transparency, favoring tax planning and consultancy firms and benefiting those who can afford their services. Key issues include the high number of tax benefits, the scattered nature of different regulations, overlapping objectives, and the difficulty in measuring impacts in terms of tax expenditure and the number of beneficiaries.
The profusion of tax benefits and the intricate rules surrounding them lead to increased costs in both compliance and administration of the tax system. These complexities burden tax authorities, who expend more resources explaining rules to taxpayers, and escalate compliance costs for taxpayers themselves. Additionally, there’s a higher likelihood of these benefits being exploited by unintended recipients, resulting in abuses and necessitating further administrative resources to address them.
In 2023, there was a noticeable increase in the perception of the Portuguese tax system as complex and ineffective, with the proportion of respondents holding this view rising from 68% to 72% (Deloitte, 2023). This growing negativity highlights the need for reform. Issues such as court efficiency, municipal licensing, authorizations, and general bureaucracy are identified as significant barriers to investment in Portugal. The implementation of electronic tax compliance systems, equipped with automatic error detection, is seen as a crucial step toward improving interactions between taxpayers and the tax authority, streamlining processes, and reducing complexities.
To enhance the competitiveness of the national economy, it is imperative to streamline the tax system by reducing complexity and ensuring greater stability. Ambiguity and frequent legislative changes are among the most commonly cited factors contributing to the complexity of the Portuguese tax system (Alves 2021).
Citations:
Deloitte. 2023. “Observatório da Competitividade Fiscal 2023.”
https://www2.deloitte.com/pt/pt/pages/tax/articles/observatorio-competitividade-fiscal-2023.html
Alves, Andreia. 2021. The Complexity of the Tax System and Its Impact on the Practice of Accounting Professionals in Portugal. Dissertação de Mestrado, Universidade do Minho.
https://repositorium.sdum.uminho.pt/handle/1822/73708
Oliveira, Francisca et al. 2019. Os benefícios fiscais em Portugal. Grupo de Trabalho para o Estudo dos Benefícios Fiscais. https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3D%3DBAAAAB%2BLCAAAAAAABACzMDQwAgCG5%2BMmBAAAAA%3D%3D
The profusion of tax benefits and the intricate rules surrounding them lead to increased costs in both compliance and administration of the tax system. These complexities burden tax authorities, who expend more resources explaining rules to taxpayers, and escalate compliance costs for taxpayers themselves. Additionally, there’s a higher likelihood of these benefits being exploited by unintended recipients, resulting in abuses and necessitating further administrative resources to address them.
In 2023, there was a noticeable increase in the perception of the Portuguese tax system as complex and ineffective, with the proportion of respondents holding this view rising from 68% to 72% (Deloitte, 2023). This growing negativity highlights the need for reform. Issues such as court efficiency, municipal licensing, authorizations, and general bureaucracy are identified as significant barriers to investment in Portugal. The implementation of electronic tax compliance systems, equipped with automatic error detection, is seen as a crucial step toward improving interactions between taxpayers and the tax authority, streamlining processes, and reducing complexities.
To enhance the competitiveness of the national economy, it is imperative to streamline the tax system by reducing complexity and ensuring greater stability. Ambiguity and frequent legislative changes are among the most commonly cited factors contributing to the complexity of the Portuguese tax system (Alves 2021).
Citations:
Deloitte. 2023. “Observatório da Competitividade Fiscal 2023.”
https://www2.deloitte.com/pt/pt/pages/tax/articles/observatorio-competitividade-fiscal-2023.html
Alves, Andreia. 2021. The Complexity of the Tax System and Its Impact on the Practice of Accounting Professionals in Portugal. Dissertação de Mestrado, Universidade do Minho.
https://repositorium.sdum.uminho.pt/handle/1822/73708
Oliveira, Francisca et al. 2019. Os benefícios fiscais em Portugal. Grupo de Trabalho para o Estudo dos Benefícios Fiscais. https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3D%3DBAAAAB%2BLCAAAAAAABACzMDQwAgCG5%2BMmBAAAAA%3D%3D
To what extent do existing tax institutions and procedures internalize negative and positive externalities?
10
9
9
The tax system is fully aligned with the goal of internalizing externalities.
8
7
6
7
6
The tax system is largely aligned with the goal of internalizing externalities.
5
4
3
4
3
The tax system is only somewhat aligned with the goal of internalizing externalities.
2
1
1
The tax system is not at all aligned with the goal of internalizing externalities.
Portugal’s tax policy internalizes positive externalities primarily through subsidies and tax benefits. One noteworthy initiative in terms of tax expenditure is the SIFIDE, the Tax Incentive System for Business R&D. This program aims to enhance the competitiveness of companies by supporting their research and development (R&D) efforts through the deduction of corresponding expenses from corporate taxes.
Since 2015, companies have reported increased R&D investment within the framework of SIFIDE (ANI, 2023). This tool facilitates greater internationalization of national projects and businesses and simultaneously enhances Portugal’s efficiency and attractiveness to international investors. The more a company invests in R&D, the higher the percentage of the incremental rate.
Taxes with environmental relevance accounted for 5.3% of total revenues from taxes and social contributions in 2022, reflecting efforts to internalize negative externalities (INE, 2023). This was higher than the EU-27 average of 5% (Eurostat, 2023). However, the 2022 ratio decreased from 2021, when it was 6.6%, marking the lowest percentage since 1995. Consequently, Portugal’s gap with the EU-27 average narrowed from one percentage point in 2021 to 0.3 percentage points in 2022. Additionally, most of this tax revenue comes from taxes on oil, with minimal contributions from taxes on pollution and resources.
Portugal has recently increased its environmental subsidies to enhance its environmental footprint. The latest state budget introduces three new green taxation measures: a levy on ultralight plastic bags, incentives for scrapping end-of-life vehicles, and an increase in the Single Circulation Tax for older vehicles. These initiatives complement existing subsidies, such as tax incentives for energy rehabilitation works in buildings and the purchase of electric cars.
However, despite these proactive steps, the OECD has noted that Portugal’s green tax policies still lack consistent incentives to effectively reduce energy and water consumption and divert waste from landfills (OECD, 2023). This observation suggests that while progress has been made, more comprehensive and impactful measures are still needed to achieve significant environmental improvements.
Citations:
ANI – Agência Nacional de Inovação. 2023. “Indicadores do SIFIDE.”
https://www.ani.pt/pt/financiamento/incentivos-fiscais/sifide/
INE – Instituto Nacional de Estatística. 2023. “Impostos e taxas com relevância ambiental 2022.” https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_destaques&DESTAQUESdest_boui=593750697&DESTAQUESmodo=2
Eurostat. 2023. “Environmental tax revenues.”
https://ec.europa.eu/eurostat/databrowser/view/env_ac_tax/default/table?lang=en
OECD. 2023. “OECD Environmental Performance Reviews: Portugal 2023.” https://www.oecd.org/environment/country-reviews/oecd-environmental-performance-reviews-portugal-2023-d9783cbf-en.htm
Since 2015, companies have reported increased R&D investment within the framework of SIFIDE (ANI, 2023). This tool facilitates greater internationalization of national projects and businesses and simultaneously enhances Portugal’s efficiency and attractiveness to international investors. The more a company invests in R&D, the higher the percentage of the incremental rate.
Taxes with environmental relevance accounted for 5.3% of total revenues from taxes and social contributions in 2022, reflecting efforts to internalize negative externalities (INE, 2023). This was higher than the EU-27 average of 5% (Eurostat, 2023). However, the 2022 ratio decreased from 2021, when it was 6.6%, marking the lowest percentage since 1995. Consequently, Portugal’s gap with the EU-27 average narrowed from one percentage point in 2021 to 0.3 percentage points in 2022. Additionally, most of this tax revenue comes from taxes on oil, with minimal contributions from taxes on pollution and resources.
Portugal has recently increased its environmental subsidies to enhance its environmental footprint. The latest state budget introduces three new green taxation measures: a levy on ultralight plastic bags, incentives for scrapping end-of-life vehicles, and an increase in the Single Circulation Tax for older vehicles. These initiatives complement existing subsidies, such as tax incentives for energy rehabilitation works in buildings and the purchase of electric cars.
However, despite these proactive steps, the OECD has noted that Portugal’s green tax policies still lack consistent incentives to effectively reduce energy and water consumption and divert waste from landfills (OECD, 2023). This observation suggests that while progress has been made, more comprehensive and impactful measures are still needed to achieve significant environmental improvements.
Citations:
ANI – Agência Nacional de Inovação. 2023. “Indicadores do SIFIDE.”
https://www.ani.pt/pt/financiamento/incentivos-fiscais/sifide/
INE – Instituto Nacional de Estatística. 2023. “Impostos e taxas com relevância ambiental 2022.” https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_destaques&DESTAQUESdest_boui=593750697&DESTAQUESmodo=2
Eurostat. 2023. “Environmental tax revenues.”
https://ec.europa.eu/eurostat/databrowser/view/env_ac_tax/default/table?lang=en
OECD. 2023. “OECD Environmental Performance Reviews: Portugal 2023.” https://www.oecd.org/environment/country-reviews/oecd-environmental-performance-reviews-portugal-2023-d9783cbf-en.htm
Graph View
To what extent do existing budgetary institutions and procedures support or hinder sustainable budgeting?
10
9
9
Budgetary institutions and policies are fully aligned with the goals of sustainable budgeting.
8
7
6
7
6
Budgetary institutions and policies are largely aligned with the goals of sustainable budgeting.
5
4
3
4
3
Budgetary institutions and policies are only somewhat aligned with the goals of sustainable budgeting.
2
1
1
Budgetary institutions and policies are not at all aligned with the goals of sustainable budgeting.
Since the 2011 – 2014 bailout period, Portugal’s budgetary policy has prioritized fiscal sustainability. This focus has resulted in a cumulative improvement of 5.4 percentage points of GDP in the budget balance over the past two years. The 2023 government forecast predicts a budget surplus of 0.8%, which could potentially mark the highest surplus in 50 years (Ministry of Finance, 2023).
The impact of the pandemic on public debt appears to have been mitigated, with a projected reduction to 98.9% of GDP in 2023, breaking the 100% barrier and distancing Portugal from the most indebted euro area countries. This positive trend has bolstered Portugal’s international credibility, leading to credit rating upgrades by Moody’s and Fitch to “A” levels (IGCP, 2023). Additionally, it helps to safeguard future investment opportunities.
Notably, these achievements involve consistently low levels of government investment, below the EU average, and the implementation of “cativações” (blockings) within the budget, referring to allocated funds that cannot be spent (Eurostat, 2023; UTAO, 2023). While contributing to fiscal discipline, these measures inevitably impact the quality of public services.
Regarding the transparency of its budget process, Portugal scored 60 out of 100 in the latest edition of the Open Budget Survey. This survey assesses factors such as the online availability, timeliness, and comprehensiveness of eight key budget documents (IBP, 2022), indicating Portugal’s moderate performance in budget transparency.
Significantly, the most recent State Budget Report from the Ministry of Finance (2023) includes, for the first time, a dedicated chapter on the Sustainable Development Goals (SDGs). This chapter aims to pinpoint specific actions contributing to the implementation of various SDGs, detailing the expenditures allocated to each goal. Various entities involved in coordinating the budget programs are responsible for providing this information. The adopted methodology involves allocating the budget of central administration entities across one or more SDGs based on their field of activity. This initiative reflects an effort to integrate sustainable development more thoroughly into the budgeting process and enhance transparency in how public funds are allocated toward achieving these global goals.
Citations:
Ministry of Finance. 2023. “Relatório do Orçamento do Estado 2024.”
https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3D%3DBQAAAB%2BLCAAAAAAABAAzNLY0NAQA8%2BjEBAUAAAA%3D
IGCP. 2023. “Agência de Gestão da Tesouraria e da Dívida Pública – Ratings.”
https://www.igcp.pt/pt/menu-lateral/gestao-da-divida-publica/ratings/
Eurostat. 2023. “Investment Share of GDP by Institutional Sectors.”
https://ec.europa.eu/eurostat/databrowser/view/sdg_08_11/default/table
UTAO. 2023. “Apreciação final da Proposta de Orçamento do Estado para 2024.” Relatório UTAO n.º 16/2023, 12 de novembro de 2023.
https://app.parlamento.pt/webutils/docs/doc.pdf?path=CymYKvjXhWAiXdTjxWTVBGLy4eOAuE3JkUNoj8QdSwiaB1Vcyx53SuPyyizwFnvc6rWxetEUdJXykFYNa15yXDnl%2fRHvP2qaz6zF7TwiIE5rSPOiyNCO4%2fBJaCTYIWkc7tkA6ajenGZSjkVIIO9GVZ9X0Qy6Mudk%2bGxX%2fwSyJxDARMbL0y40R2ilUSy6fROhLNpkeEQSisfMY6QWFfzdQQY5p%2fbvEfVmkhgg89ugihnpNePdX6WdMwNiEUkkC%2bv0vlp78lBN69K%2f0QNOsgRyBMyiWnbekXvk%2ffWa%2fJCcfia%2fhdEyD5ftbIQJ9Yu5Wqe7dFQKQ6lVSAI2oDFo0lPg9z5rtvIoJvtPnhFuCGQ0vRlnU1WMgiIUd%2fN3lj3NqSvIyyQIkvfKhAQSbRE1bRYgJ3dims8DqW7MA6PCNASSpUpWkVQAvu8GYQllhCInirxwuQLqJ%2bvrt1NSFDTx%2baDFBK%2fJVmCPbCTJPj5qzeE4DzXGb%2bIcvUYnVkvo5u6Z5Vzwx%2bGb05PJD%2b7jDHi5OtHdbw%3d%3d&fich=UTAO-Rel-16-2023-POE2024.pdf&Inline=true
The impact of the pandemic on public debt appears to have been mitigated, with a projected reduction to 98.9% of GDP in 2023, breaking the 100% barrier and distancing Portugal from the most indebted euro area countries. This positive trend has bolstered Portugal’s international credibility, leading to credit rating upgrades by Moody’s and Fitch to “A” levels (IGCP, 2023). Additionally, it helps to safeguard future investment opportunities.
Notably, these achievements involve consistently low levels of government investment, below the EU average, and the implementation of “cativações” (blockings) within the budget, referring to allocated funds that cannot be spent (Eurostat, 2023; UTAO, 2023). While contributing to fiscal discipline, these measures inevitably impact the quality of public services.
Regarding the transparency of its budget process, Portugal scored 60 out of 100 in the latest edition of the Open Budget Survey. This survey assesses factors such as the online availability, timeliness, and comprehensiveness of eight key budget documents (IBP, 2022), indicating Portugal’s moderate performance in budget transparency.
Significantly, the most recent State Budget Report from the Ministry of Finance (2023) includes, for the first time, a dedicated chapter on the Sustainable Development Goals (SDGs). This chapter aims to pinpoint specific actions contributing to the implementation of various SDGs, detailing the expenditures allocated to each goal. Various entities involved in coordinating the budget programs are responsible for providing this information. The adopted methodology involves allocating the budget of central administration entities across one or more SDGs based on their field of activity. This initiative reflects an effort to integrate sustainable development more thoroughly into the budgeting process and enhance transparency in how public funds are allocated toward achieving these global goals.
Citations:
Ministry of Finance. 2023. “Relatório do Orçamento do Estado 2024.”
https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3D%3DBQAAAB%2BLCAAAAAAABAAzNLY0NAQA8%2BjEBAUAAAA%3D
IGCP. 2023. “Agência de Gestão da Tesouraria e da Dívida Pública – Ratings.”
https://www.igcp.pt/pt/menu-lateral/gestao-da-divida-publica/ratings/
Eurostat. 2023. “Investment Share of GDP by Institutional Sectors.”
https://ec.europa.eu/eurostat/databrowser/view/sdg_08_11/default/table
UTAO. 2023. “Apreciação final da Proposta de Orçamento do Estado para 2024.” Relatório UTAO n.º 16/2023, 12 de novembro de 2023.
https://app.parlamento.pt/webutils/docs/doc.pdf?path=CymYKvjXhWAiXdTjxWTVBGLy4eOAuE3JkUNoj8QdSwiaB1Vcyx53SuPyyizwFnvc6rWxetEUdJXykFYNa15yXDnl%2fRHvP2qaz6zF7TwiIE5rSPOiyNCO4%2fBJaCTYIWkc7tkA6ajenGZSjkVIIO9GVZ9X0Qy6Mudk%2bGxX%2fwSyJxDARMbL0y40R2ilUSy6fROhLNpkeEQSisfMY6QWFfzdQQY5p%2fbvEfVmkhgg89ugihnpNePdX6WdMwNiEUkkC%2bv0vlp78lBN69K%2f0QNOsgRyBMyiWnbekXvk%2ffWa%2fJCcfia%2fhdEyD5ftbIQJ9Yu5Wqe7dFQKQ6lVSAI2oDFo0lPg9z5rtvIoJvtPnhFuCGQ0vRlnU1WMgiIUd%2fN3lj3NqSvIyyQIkvfKhAQSbRE1bRYgJ3dims8DqW7MA6PCNASSpUpWkVQAvu8GYQllhCInirxwuQLqJ%2bvrt1NSFDTx%2baDFBK%2fJVmCPbCTJPj5qzeE4DzXGb%2bIcvUYnVkvo5u6Z5Vzwx%2bGb05PJD%2b7jDHi5OtHdbw%3d%3d&fich=UTAO-Rel-16-2023-POE2024.pdf&Inline=true
Graph View
How committed is the government to utilizing research and innovation as drivers for the transition to a sustainable economy and society?
10
9
9
The government is clearly committed to utilizing research and innovation as drivers for the transition to a sustainable economy and society.
8
7
6
7
6
The government is largely committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
5
4
3
4
3
The government is somewhat committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
2
1
1
The government is not at all committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
The National Innovation Agency (ANI) plays a pivotal role in advancing innovation in Portugal, aiming to transform the economy through science. It focuses on three key national objectives: energy transition, digital transition, and cohesion. ANI’s responsibilities include promoting knowledge transfer to generate value for the national economy, setting priorities, and defining indicators to support the adoption of knowledge and technology by businesses and society. It also measures the performance of the National Innovation System and the impact of technology valorization and innovation policy promotion.
Furthermore, ANI oversees the National Research and Innovation Strategy for Smart Specialization (ENEI 2030), a strategic initiative aimed at fostering national innovation. It ensures the effective coordination and monitoring of this strategy’s implementation, maximizing complementarity and synergies across different territorial levels. The ENEI 2030, which is transversal in nature, focuses on six priority domains corresponding to the thematic priorities for the current decade: Digital Transition, Green Transition, Materials, Systems and Production Technologies, Society, Creativity and Heritage, Health, Biotechnology and Food, and Great Natural Assets (ANI, 2023).
The country achieved a record high in total R&D spending in 2022, reaching 1.7% of GDP, with the private sector as the major contributor, accounting for 62% of national R&D expenditure (PORDATA, 2023). However, this remains below the EU-27 average of 2.2%. Similarly, Portugal’s government sector expenditure on R&D accounts for only 4% of total R&D expenditure, compared to an average of 11% in the EU (Eurostat, 2023).
Although the government emphasizes research and innovation, particularly in technology, public support has not significantly increased. Portugal’s R&D investment is not only below the OECD average of 2.7% but also falls short of the Council of Ministers’ 2030 target of 3%.
In the 2023 European Union Innovation Scoreboard, Portugal is categorized as a “moderate innovator,” the second-lowest of four categories. Its performance is below the average for its category, with an increasing gap compared to the EU. Strengths include foreign doctoral students, government support for business R&D, public-private co-publications, broadband penetration, and international scientific co-publications. However, weaknesses are evident in areas like air emissions, innovation expenditure per employee, venture capital investments, environmental technologies, and resource productivity.
Despite these challenges, Portugal offers a somewhat favorable environment for startup development, including investments in “unicorn hubs” that support innovation communities in fields like AI, gaming, blue tech, fintech, sustainability, foodtech, and XR. This initiative began in 2023 with the launch of the Soft Launch and Scaling Up programs (ECO, 2023). Additionally, Lisbon has hosted the Web Summit – Europe’s largest technology conference – since 2016.
Citations:
ANI. 2023. “ENEI – Estratégia Nacional de Especialização Inteligente.” https://www.ani.pt/pt/valorizacao-do-conhecimento/valoriza%C3%A7%C3%A3o-de-pol%C3%ADticas/enei-estrat%C3%A9gia-nacional-de-especializa%C3%A7%C3%A3o-inteligente/
ECO. 2023. “Depois do Beato, fábrica de unicórnios aposta em novos hubs de inovação.” ECO, November 14. https://eco.sapo.pt/2023/11/14/depois-do-beato-fabrica-de-unicornios-aposta-em-novos-hubs-de-inovacao/
European Commission. 2023. “European Innovation Scoreboard 2023 – Country profile Portugal.” Directorate-General for Research and Innovation, June 2023.
https://ec.europa.eu/assets/rtd/eis/2023/ec_rtd_eis-country-profile-pt.pdf
Eurostat. 2023. “R&D Expenditure.” https://ec.europa.eu/eurostat/statistics-explained/index.php?title=R%26D_expenditure&oldid=551418
PORDATA. 2023. “Despesas em atividades de investigação e desenvolvimento (I&D) em % do PIB: por setor de execução.”
https://www.pordata.pt/portugal/despesas+em+atividades+de+investigacao+e+desenvolvimento+(i+d)+em+percentagem+do+pib+por+setor+de+execucao-1133
Furthermore, ANI oversees the National Research and Innovation Strategy for Smart Specialization (ENEI 2030), a strategic initiative aimed at fostering national innovation. It ensures the effective coordination and monitoring of this strategy’s implementation, maximizing complementarity and synergies across different territorial levels. The ENEI 2030, which is transversal in nature, focuses on six priority domains corresponding to the thematic priorities for the current decade: Digital Transition, Green Transition, Materials, Systems and Production Technologies, Society, Creativity and Heritage, Health, Biotechnology and Food, and Great Natural Assets (ANI, 2023).
The country achieved a record high in total R&D spending in 2022, reaching 1.7% of GDP, with the private sector as the major contributor, accounting for 62% of national R&D expenditure (PORDATA, 2023). However, this remains below the EU-27 average of 2.2%. Similarly, Portugal’s government sector expenditure on R&D accounts for only 4% of total R&D expenditure, compared to an average of 11% in the EU (Eurostat, 2023).
Although the government emphasizes research and innovation, particularly in technology, public support has not significantly increased. Portugal’s R&D investment is not only below the OECD average of 2.7% but also falls short of the Council of Ministers’ 2030 target of 3%.
In the 2023 European Union Innovation Scoreboard, Portugal is categorized as a “moderate innovator,” the second-lowest of four categories. Its performance is below the average for its category, with an increasing gap compared to the EU. Strengths include foreign doctoral students, government support for business R&D, public-private co-publications, broadband penetration, and international scientific co-publications. However, weaknesses are evident in areas like air emissions, innovation expenditure per employee, venture capital investments, environmental technologies, and resource productivity.
Despite these challenges, Portugal offers a somewhat favorable environment for startup development, including investments in “unicorn hubs” that support innovation communities in fields like AI, gaming, blue tech, fintech, sustainability, foodtech, and XR. This initiative began in 2023 with the launch of the Soft Launch and Scaling Up programs (ECO, 2023). Additionally, Lisbon has hosted the Web Summit – Europe’s largest technology conference – since 2016.
Citations:
ANI. 2023. “ENEI – Estratégia Nacional de Especialização Inteligente.” https://www.ani.pt/pt/valorizacao-do-conhecimento/valoriza%C3%A7%C3%A3o-de-pol%C3%ADticas/enei-estrat%C3%A9gia-nacional-de-especializa%C3%A7%C3%A3o-inteligente/
ECO. 2023. “Depois do Beato, fábrica de unicórnios aposta em novos hubs de inovação.” ECO, November 14. https://eco.sapo.pt/2023/11/14/depois-do-beato-fabrica-de-unicornios-aposta-em-novos-hubs-de-inovacao/
European Commission. 2023. “European Innovation Scoreboard 2023 – Country profile Portugal.” Directorate-General for Research and Innovation, June 2023.
https://ec.europa.eu/assets/rtd/eis/2023/ec_rtd_eis-country-profile-pt.pdf
Eurostat. 2023. “R&D Expenditure.” https://ec.europa.eu/eurostat/statistics-explained/index.php?title=R%26D_expenditure&oldid=551418
PORDATA. 2023. “Despesas em atividades de investigação e desenvolvimento (I&D) em % do PIB: por setor de execução.”
https://www.pordata.pt/portugal/despesas+em+atividades+de+investigacao+e+desenvolvimento+(i+d)+em+percentagem+do+pib+por+setor+de+execucao-1133
Graph View
How committed and credible is the government in its activities to guide the effective regulation and supervision of the international financial architecture?
10
9
9
The government is clearly committed to ensuring the stability of the global financial system.
8
7
6
7
6
The government is largely committed to ensuring the stability of the global financial system.
5
4
3
4
3
The government is somewhat committed to ensuring the stability of the global financial system.
2
1
1
The government is not at all committed to ensuring the stability of the global financial system.
Portugal, as a peripheral country, faces limitations in contributing to the effective regulation and supervision of the international financial architecture. Portuguese policymakers primarily focus on the global financial system’s impact on Portugal rather than its broader implications.
Despite its peripheral status, the country’s high public debt risk has driven successive governments to prioritize fiscal sustainability and financial stability, particularly during the 2011 – 2014 bailout period. Nobel laureate Paul Krugman recently described Portugal as an “economic miracle,” noting its capacity to withstand the risk of high interest rates on debt due to robust economic growth (Jornal de Negócios, 2023).
Portugal actively supports policies that promote transparency in international financial markets. In the 2022 Financial Secrecy Index, which measures the extent to which countries aid individuals in hiding finances from legal oversight, Portugal ranked 57th out of 141 countries (Tax Justice Network, 2023). This ranking indicates that Portugal contributes only 0.59% to global financial secrecy, demonstrating its commitment to financial transparency.
Notably, Portugal played a key role during its Presidency of the Council of the European Union in advocating for the public disclosure of Country by Country Reporting, a directive that was subsequently approved in the European Parliament. This directive mandates that multinational companies in the EU with consolidated revenues exceeding €750 million disclose information about profits and income tax in each member state and in third countries listed by the EU as non-cooperative jurisdictions for tax purposes. The directive’s objective is to combat tax havens by holding multinational companies accountable for their contributions to transparency and corporate social responsibility in taxation.
More recently, Portugal agreed to a new directive that establishes a minimum corporate tax rate of 15% worldwide for multinationals, applicable to groups with annual consolidated revenues of €750 million or more. Portugal is set to transpose these rules within the current year, further reinforcing its position in favor of greater corporate tax fairness and transparency on the international stage.
Citations:
Jornal de Negócios. 2023. “Paul Krugman: ‘Portugal é uma espécie de milagre económico.’”
https://www.jornaldenegocios.pt/o-poder-de-fazer-acontecer/entrevistas/detalhe/paul-krugman-portugal-e-uma-especie-de-milagre-economico
Tax Justice Network. 2023. “Financial Secrecy Index 2022.”
https://fsi.taxjustice.net/
Despite its peripheral status, the country’s high public debt risk has driven successive governments to prioritize fiscal sustainability and financial stability, particularly during the 2011 – 2014 bailout period. Nobel laureate Paul Krugman recently described Portugal as an “economic miracle,” noting its capacity to withstand the risk of high interest rates on debt due to robust economic growth (Jornal de Negócios, 2023).
Portugal actively supports policies that promote transparency in international financial markets. In the 2022 Financial Secrecy Index, which measures the extent to which countries aid individuals in hiding finances from legal oversight, Portugal ranked 57th out of 141 countries (Tax Justice Network, 2023). This ranking indicates that Portugal contributes only 0.59% to global financial secrecy, demonstrating its commitment to financial transparency.
Notably, Portugal played a key role during its Presidency of the Council of the European Union in advocating for the public disclosure of Country by Country Reporting, a directive that was subsequently approved in the European Parliament. This directive mandates that multinational companies in the EU with consolidated revenues exceeding €750 million disclose information about profits and income tax in each member state and in third countries listed by the EU as non-cooperative jurisdictions for tax purposes. The directive’s objective is to combat tax havens by holding multinational companies accountable for their contributions to transparency and corporate social responsibility in taxation.
More recently, Portugal agreed to a new directive that establishes a minimum corporate tax rate of 15% worldwide for multinationals, applicable to groups with annual consolidated revenues of €750 million or more. Portugal is set to transpose these rules within the current year, further reinforcing its position in favor of greater corporate tax fairness and transparency on the international stage.
Citations:
Jornal de Negócios. 2023. “Paul Krugman: ‘Portugal é uma espécie de milagre económico.’”
https://www.jornaldenegocios.pt/o-poder-de-fazer-acontecer/entrevistas/detalhe/paul-krugman-portugal-e-uma-especie-de-milagre-economico
Tax Justice Network. 2023. “Financial Secrecy Index 2022.”
https://fsi.taxjustice.net/