Paris, April 9, 2026 (Lusa) – The OECD has recommended that Portugal reduce taxes for lower-paid workers by increasing property taxes, eliminating ineffective tax exemptions, and improving employment rates for young people, women, and senior workers.
In its report "Foundations for Growth and Competitiveness 2026", published on Thursday to propose reforms to increase productivity and growth, the Organisation for Economic Co-operation and Development (OECD) said that Portugal’s economic performance continued to lag behind those of the organisation’s most advanced economies.
"Although the gap in the investment rate has narrowed, weak long-term productivity growth has led to a persistent gap in output per hour", it said.
The OECD pointed out that the significant deficit in GDP (Gross Domestic Product) per capita reflected a relatively underperforming Portuguese labour market, which, despite having historically low unemployment, employment rates among young people persist, saying that there is "room for improvement" regarding the participation of women and older workers.
"Ongoing structural changes, slow productivity growth and an ageing population require an adaptable economy, safeguarding competitiveness and fiscal sustainability by promoting sustained gains in productivity and employment", the report said.
Additionally, lowering regulatory barriers to competition would make it easier for innovative start-ups to enter the market and grow, whilst enhancing training and childcare services, alongside strengthening work incentives for older employees and the long-term unemployed, would assist in extending working lives and mitigating skills shortages, the report added.
Regarding the Portuguese tax system, the report said that there was a heavy reliance on labour taxes, thereby penalising lower-paid workers, whereas property taxes remained comparatively low.
The report also highlighted that numerous tax allowances led to significant revenue losses and higher compliance costs, particularly evident in Corporate Income Tax (IRC), which is characterised by numerous exemptions, state and municipal surcharges, and preferential rates for small and medium-sized enterprises.
Given these challenges, the OECD recommended simplifying the tax system, broadening the tax base by removing ineffective exemptions, and suggesting that the resulting fiscal flexibility should be used to decrease tax rates and labour costs for lower-paid workers, effectively shifting the fiscal burden from employment to recurring property taxes.
To boost productivity, the OECD advised enhancing the skills of the current workforce, particularly among youth, women, and older workers.
To achieve this, it advocated for the creation of national quality certification standards for lifelong learning and the expansion of affordable childcare, specifically prioritising households in low-income and disadvantaged areas.
The report also proposed achieving a more equitable balance of protection between different contract types, encouraging the use of permanent contracts over temporary ones, which the organisation noted remained prevalent, reducing the cost of dismissals.
The organisation addressed the housing crisis, highlighting the need to improve affordability and mobility, as the sharp rise in house prices and rents had made it difficult for young people to buy or rent, maintain mortgage payments, or relocate for work.
The OECD recommended simplifying and harmonising construction licensing procedures across municipalities, gradually shifting the tax burden from transaction taxes to recurrent property taxes (by regularly updating property values in line with market values) and increasing the supply of social rental housing.
Finally, the OECD called for higher-quality competition regulation and increased investment in the energy sector, where public investment had lagged the organisation's average, saying that Portugal faces growing risks from wildfires, droughts, and rising sea levels.
PD/MYAL // ADB.
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