Portugal loses tax competitiveness to Eastern Europe

Portugal is now not only losing the competitive edge on Eastern Europe in terms of manufacturing, but is also losing tax competitiveness, despite having received billions in EU levelling up funds over the past 20 years.

According to the international think tank ‘Tax Competitiveness Index 2023’, in 2020, Portugal compared to the other EU Member State countries, came 13th in terms of tax burden with 37.6% of GDP going on tax compared to the European Union average tax to GDP rate of 41.3%.
But it rose to 6th highest position of all the 27 Member States (+17% above the European average) in terms of tax effort – an indicator used to evaluate the incidence of government revenue in the production of society. It measures the relationship between the percentage of public revenue with respect to gross domestic product (GDP) and per capita income. Only Greece (+63%), Poland (29%), Croatia (+24%), Bulgaria (+20%) and Hungary (+19%) are worse than Portugal.
However, between 2019 and 2022 the tax burden rose from 34.5% to 36.4% of GDP in Portugal, and the tax effort increased from 109.7% to 116.8%, with tax revenues being boosted by the effects of inflation, yet the State had done nothing significant to offset this increase by alleviating taxes for the general population or businesses compared to these circumstantial windfalls.
Looking at the past 20 years as a whole, it is evident that Portugal, despite having reduced its tax effort, has lost ground when it comes to the average European Union tax effort, but mostly to convergence and Eastern European countries.
“A country’s ability to reduce its tax level is crucial for its overseas economic competitiveness and its ability to attract investment and capital, so to compete on the European and International stage, Portugal will have to lower its tax effort and burden, demanding less from its citizens and companies so that both can save and invest”, states the report.