city street and building

Portugal’s standard of living takes nosedive “and may continue falling”

Study considers standard of living ‘already below that of Romania’

The standard of living in Portugal, pressurised by the weight of taxation, is already below that of Romania, and could continue to fall in relation to the European Union (EU) average, according to a study by the Faculty of Economics of Porto (FEP) .

The study, which is the first chapter of the publication ‘Economy and Business: Trends, Perspectives and Proposals’, published by the institution’s new Office of Economic, Business and Public Policy Studies (G3E2P), analysed the evolution of the standard of living in Portugal and presented a less than optimistic scenario, writes Lusa.

“The relative loss (of the standard of living) between 1999 and 2022 resulted from the worse relative behaviour of productivity per employee and the unemployment rate and, to a lesser extent, from the reduction in the relative advantage in the public’s activity rate,” says FEP in a statement.

FEP also warns that the foreseeable upward revision of the population in Eurostat’s data (incorporating more recent information from Portugal’s National Statistical Institute, INE) will further worsen the relative standard of living, placing Portugal below Romania, in the 6th worst position in 2022 (75.9% of the EU), instead of the 7th worst in the official data (77.1%).

The institution also emphasises that “the signs of a reversal of Portugal’s temporary relative advantages since the start of the war in Ukraine, in terms of tourism (due to its image as a beautiful and safe destination, far from the conflict) and energy, are clear, and will therefore also tend to worsen” the relative standard of living in the near future.

FEP also points to “a strong overestimation of the fall in the number of hours per official employee between 2019 and 2022 in Portugal compared to the actual evolution of the working day – resulting in an increase in hourly productivity well above that recorded in the EU”, citing other work on remote working that points to “an increase in hours worked as a result of productivity losses, especially full-time, although there are advantages, such as reconciling work with family life”.

FEP advises “carrying out surveys to gauge actual working hours, guaranteeing anonymity”, and argues that “before thinking about further reductions in daily working hours of an administrative nature, we must first ensure that, as far as possible, the current official working hours are adhered to, by stepping up monitoring”.

“The tendency to reduce hours worked is centuries old and will increase with technological advances, but this should be a decision for companies and workers, not for the administration.” 

The study also shows that “the weight of wealth-generating factors in GDP has shrunk in favour of taxes and contributions, unlike the EU, which also helps to explain our lower economic growth, since wealth must first be generated before it can be distributed.” 

The institution assures that “the share for the State has been getting bigger and bigger, explaining the maximum tax burden of 36.4% of GDP in 2022 which, after being relativised by the relative standard of living, translates into a tax effort 17% above the EU average, the 5th highest” in the bloc.

“In the most recent period, from 2019 to 2022, (Portugal’s) tax burden rose from 34.5% to 36.4% of GDP and the tax effort from 109.7% to 116.8%, with tax revenues being boosted by the effect of inflation without the State having significantly reduced taxation to counteract this effect, in a different direction to the rest of the EU.”

Source: LUSA