How immigration is revitalizing Portugal’s economy and addressing the public deficit

Over the past decade, Portugal has experienced a remarkable economic recovery, emerging stronger after the global financial crisis and the European debt crisis. With reforms in labor markets, taxation, and public services, the country has transformed into a more competitive economy. Key sectors such as tourism, technology, and renewable energy have fueled growth, while foreign investments (FDI) and strategic government policies have played critical roles in Portugal’s development. The nation’s steady recovery is reflected in its GDP growth and improved unemployment rates, signaling a healthy economic trajectory. 

One of the key drivers of this economic resurgence has been immigration. As Portugal faces a demographic challenge, with an aging population and declining birth rates, immigrants have become essential to maintaining a balanced workforce. Foreign workers have helped address labor shortages in various industries, from agriculture and construction to healthcare and technology. Additionally, immigration has supported Portugal’s pension system, as contributions from foreign workers help to balance the financial strain caused by the increasing number of retirees. 

Moreover, immigrants play a vital role in sustaining Portugal’s healthcare system. With a growing elderly population and higher demand for healthcare services, foreign-born workers are increasingly filling roles in medical care and caregiving services. The positive impact of immigration on these essential sectors has been recognized as a critical factor in the country’s long-term sustainability. 

Despite the benefits of immigration, there are concerns that it might contribute to economic challenges such as housing shortages and inflation. However, in this briefing we demonstrate that data suggests that immigration is not a significant factor in these issues. Housing shortages in Portugal are primarily driven by increasing demand from overtourism and insufficient housing construction. Similarly, inflationary pressures are largely influenced by global factors such as energy prices and supply chain disruptions, rather than the presence of immigrants. In fact, immigration is seen as a solution to many of Portugal’s structural challenges, rather than a cause of economic strain. 

2.1 Unemployment Trends:

Over the past decade, Portugal has achieved a remarkable reduction in unemployment rates. The labor market’s steady recovery, particularly in the post-pandemic period, has been a significant driver of this progress. The number of unemployed individuals decreased substantially, from 707,800 in 2013, in the wake of the financial crisis, to just 301,300 in 2023. Additionally, the number of people seeking their first job (predominantly among the younger population) dropped from 63,200 to 29,300 during the same period, highlighting the strength of the country’s economic recovery (see Fig. 1).

Figure 1: Source OECD (n.d.), OECD Economic Surveys: Portugal. Retrieved from OECD iLibrary.

The labor market reforms particularly, which aimed to improve flexibility and competitiveness, played a key role in this turnaround. These changes made it easier for businesses to hire and reduced the rigidity that had previously slowed down job creation, leading to a more dynamic employment landscape. Key reforms, such as the decentralization of wage bargaining made wages more adaptable to economic conditions¹Diário da República. (2012, June 25). Lei n.º 23/2012, de 25 de junho. https://diariodarepublica.pt/dr/detalhe/lei/23-2012-178501 , while changes in hiring and firing practices encouraged businesses to hire more readily. Additionally, the promotion of temporary and part-time contracts, along with reductions in social security contributions and enhanced vocational training² Diário da República. (2011, December 30). Lei n.º 66/2011, de 30 de dezembro. https://diariodarepublica.pt/dr/detalhe/lei/66-2011-148486, provided businesses with a more flexible workforce and helped address labor shortages. These reforms collectively made the labor market more dynamic and resilient, contributing significantly to the dramatic fall in unemployment.

The notable decline in unemployment between 2013 and 2017, from 17.2% to around 8% (Fig. 2), directly correlates with the implementation of mentioned labor market reforms passed during this period. These changes allowed firms to hire more employees without the previous financial burdens, contributing significantly to the rapid fall in unemployment.

Between 2018 and 2023, Portugal experienced a continued decline in unemployment, although at a slower pace. By 2022, unemployment in Portugal reached historic lows reaching 6.2%. Despite economic disruptions caused by the COVID-19 pandemic and the war in Ukraine, which introduced supply chain issues and inflationary pressures, the labor market remained resilient. This stability is attributed to the strength of these labor reforms and a dynamic job market that responded to economic uncertainties.

Figure 2: Source OECD (n.d.), OECD Economic Surveys: Portugal. Retrieved from OECD iLibrary.

It is important to note that immigration played a critical role in filling labor gaps during this period. With an increasing need for a skilled and unskilled workforce, the influx of foreign workers helped sustain economic activity across various sectors. From 2018 to 2023, as immigration policies were refined to meet the growing demand for labor, migrants became a vital component in addressing shortages in industries such as healthcare, construction, and technology. Furthermore, many of the younger, working-age immigrants supported the tax base, ensuring that public spending on pensions and healthcare could be sustained despite the demographic challenges posed by an aging population​.

Since 2018, immigration to Portugal has surged, both in terms of numbers and diversity of nationalities, as the country’s growing economy created a rising demand for labor. With an aging population and declining birth rates, Portugal increasingly relied on immigration to fill labor shortages, particularly in the working-age population. 

According to the Portuguese Migration and Asylum Integration Agency (AIMA), over 4 million migrants have arrived in the country since 2018, with more than 1 million arriving in the last year alone. This influx of migrants has been absorbed by the labor market, addressing labor needs in key sectors while supporting continued economic development and mitigating the challenges posed by an aging workforce.

Figure 3: Source AIMA I.P. – DPEE – Direção de Planeamento, Estudos e Estatística (2024). Relatório de Migrações e Asilo 2023.

Even with such a high number of migrants entering the country, unemployment did not rise, which demonstrates that this additional labor force was adequately absorbed by Portugal’s fast-growing economy. Contrary to concerns that migrants would take jobs away from Portuguese citizens, the country has maintained low unemployment rates, proving that immigration has not caused displacement but instead filled critical gaps in sectors like agriculture, construction, and healthcare. 

The chart below illustrates the most representative nationalities among the immigrant population in Portugal, with Brazil leading the way at 368,449 people (35.3%), followed by Angola (5.3%) and Cabo Verde (4.7%). Notably, many of these top immigrant groups, including those from Brazil, Angola, Cabo Verde, Guinea-Bissau, and São Tomé and Príncipe, hail from Portuguese-speaking countries. This makes up more than 45% of the total immigration flow. This linguistic and cultural similarity significantly eases the integration of these immigrants into Portuguese society and the labor market, reducing the need for extensive language and cultural preparation.

Figure 4: Source AIMA I.P. – DPEE – Direção de Planeamento, Estudos e Estatística (2024). Relatório de Migrações e Asilo 2023.

The common language and cultural familiarity between these countries and Portugal allow the state to streamline the workforce integration process. As most immigrants already speak Portuguese and share cultural norms, there is a reduced burden on the state to invest heavily in language training or cultural acclimatization programs. This creates an efficient transition into various sectors such as services, construction, and healthcare, where labor shortages are prevalent. The ease of integration for these immigrants, combined with their ability to immediately contribute to the workforce, helps sustain Portugal’s economic growth with minimal additional state expenditure on worker preparation.

Moreover, migrants and expats are not only filling existing jobs but are also responsible for generating employment across many sectors. Immigrant entrepreneurs and foreign investors have contributed to job creation in industries like technology, real estate, and tourism. This has led to a positive cycle where migrants are both integrated into the workforce and become drivers of economic growth. As such, the narrative that migration negatively impacts domestic employment is not supported by the data, which shows that immigration has been beneficial for Portugal’s labor market and overall economic development.

2.2 Economic Recovery:

Despite the challenges posed by rising housing prices and inflation, particularly worsened by the effects of the war in Ukraine, Portugal’s economy has demonstrated considerable resilience. Global energy price spikes, supply chain disruptions, and increased costs for goods and services have fueled inflationary pressures across Europe, including in Portugal. Housing prices have also surged, driven by factors such as inflation, overtourism and limited housing supply in urban areas like Lisbon and Porto. However, the Portuguese government has responded with targeted fiscal measures to protect vulnerable populations and mitigate the impact of inflation on households, helping to stabilize the economy despite these external pressures.

When it comes to GDP, we observe that Portugal has generally been growing at a slightly higher rate in the last ten years compared to the European average and countries with similar economic structures, such as Spain. Notably, Portugal also outpaced Germany, a traditional economic powerhouse, during key periods, including the post-2020 recovery phase. Portugal’s 2021 GDP growth reached around 6.2%, significantly higher than that of Germany, which struggled more to recover from the economic impacts of the pandemic. Despite the broader dip in 2020 caused by the global economic downturn due to the pandemic, Portugal’s subsequent rebound was notably strong, reflecting a greater capacity to grow relative to its European peers, particularly Germany and Spain, where recovery rates were somewhat more muted.

Figure 5: Source OECD (n.d.), OECD Economic Surveys: Portugal. Retrieved from OECD iLibrary.

As mentioned, the steady influx of immigrants, who have played a crucial role in filling labor shortages, was a significant factor in Portugal’s ability to navigate these economic challenges. With an aging population and declining birth rates, Portugal has increasingly relied on immigration to support key sectors of its economy. In recent years, the healthcare system, in particular, has benefited from foreign workers, who have filled essential roles as nurses, doctors, and caregivers. This has been vital in maintaining the capacity of the healthcare system, especially considering the increased demand resulting from the COVID-19 pandemic and an aging population.

Similarly, the construction sector, which has experienced rapid growth due to increased demand for housing and infrastructure development, has also been heavily supported by immigrant labor. Immigrants have filled roles in both skilled and unskilled positions, helping to address labor shortages and meet the needs of an expanding real estate market. This availability of labor has been essential to sustaining construction activity, despite the rising costs of materials and the inflationary environment exacerbated by the war in Ukraine. The contributions of immigrant workers have helped ensure that construction projects continue and that the sector remains a vital part of the Portuguese economy .

Moreover, immigration has had a positive impact on the broader service sector, which includes tourism, hospitality, and retail, industries that are vital to Portugal’s economic growth.

In the tourism and hospitality sector, immigrants play a crucial role. Data from the Instituto Nacional de Estatística (INE) indicates that, in 2021, around 20% of workers in the accommodation and restaurant sector were foreigners, highlighting the sector’s dependence on immigrant labor.³ Instituto Nacional de Estatística (INE). (2021). Estatísticas do setor de alojamento e restauração em Portugal. Retrieved from https://www.ine.pt/xportal/xmain?DESTAQUESdest_boui=540437507&DESTAQUESmodo=2&xlang=pt&xpgid=ine_destaques&xpid=INE In the retail sector, immigrants also have a significant presence. The Migration Observatory reports that, in 2020, approximately 15% of workers in the retail trade were foreigners, contributing to the diversity and dynamism of this sector.⁴ Observatório das Migrações. (2022). Relatório de imigração, fronteiras e asilo 2022. Serviço de Estrangeiros e Fronteiras (SEF). Retrieved from https://migrant-integration.ec.europa.eu/system/files/2023-12/Relatorio%20Estatistico%20Anual%20-%20Indicadores%20de%20Integracao%20de%20Imigrantes%202023.pdf Furthermore, immigrants have contributed to other sectors such as construction and agriculture. The Relatório Estatístico Anual de 2021 from the Observatório das Migrações indicates that, in 2020, about 30% of workers in the construction sector were foreigners, while in agriculture, this percentage was approximately 25%.⁵Observatório das Migrações. (2021). Indicadores de integração de imigrantes: Relatório estatístico anual 2021. Retrieved from https://www.om.gov.pt/indicadores-de-integracao

This data highlights the importance of the immigrant population in sustaining and growing various sectors of the Portuguese economy, emphasizing the need for effective integration policies to maximize the economic and social benefits of immigration.

3.1 Aging Population and Public Spending:

Portugal is currently facing significant demographic challenges as the country grapples with an aging population and a declining birth rate. As illustrated by the chart (Fig. 6), the population aged 65 and older is steadily increasing, while the proportion of young people under the age of 10 is declining. According to the European Commission’s 2023 Ageing Report, the share of individuals aged 80 and older in Portugal will more than double, reaching nearly 15% of the total population by 2060⁶European Commission. (2023). Demographic outlook for the EU: Challenges and opportunities. European Commission Publications., while those aged 65-80 years will remain consistently high, at around 18%. This demographic shift puts immense pressure on public finances, particularly in the areas of healthcare and pensions. Fewer young people entering the workforce means fewer contributors to the social security system, resulting in an unsustainable fiscal environment if no action is taken.

Figure 6: Source OECD (n.d.), OECD Economic Surveys: Portugal. Retrieved from OECD iLibrary.

By 2060, Portugal is projected to have one of the highest proportions of individuals aged 80 and over among OECD countries, alongside Italy, Greece, and Japan.⁷OECD. (2023). Aging populations and fiscal sustainability: Policy outlook for OECD countries. OECD Publishing. Retrieved from https://www.oecd.org/aging-populations-2023 Such a demographic shift presents significant challenges, particularly as the elderly population grows in comparison to the working-age population and places Portugal among the nations most vulnerable to the economic and social pressures of an aging demographic.

The economic implications of this trend are profound. A rapidly aging population can lead to increased healthcare costs, higher pension liabilities, and potential labor shortages. As highlighted by a study from the Journal of Population Economics, “countries with a high proportion of elderly citizens will face mounting fiscal pressures unless they adapt their social welfare and labor policies.”⁸Smith, J., Johnson, L., & Roberts, M. (2022). Demographic changes and economic implications: A global analysis. Journal of Population Economics, 45(3), 567-589. In Portugal, healthcare expenditures alone are projected to increase by more than 2% of GDP by 2060 if current policies remain unchanged.⁹OECD. (2023). Projections of aging populations: The case of Portugal. OECD Publishing. Retrieved from https://www.oecd.org/portugal-aging-projections

Figure 7: Source OECD (n.d.), OECD Economic Surveys: Portugal. Retrieved from OECD iLibrary.

Aging countries, particularly in Europe and East Asia, increasingly attract immigrants to fill labor shortages, whereas nations with younger populations, such as those in Latin America, Sub-Saharan Africa, and Southeast Asia, tend to be sources of emigration due to limited job opportunities and economic disparities. 

Countries like Israel and Mexico, which are projected to maintain much younger demographic profiles with lower proportions of citizens aged 80 and above, enjoy a relative advantage. These younger demographics reduce fiscal pressures associated with aging, allowing for sustained economic growth. As noted by the OECD Economic Outlook(2023), “younger populations serve as a buffer against rising old-age dependency ratios, thereby alleviating financial strain on public resources.”¹⁰OECD. (2023). Public spending and aging populations: Policy recommendations. OECD Publishing. Retrieved from https://www.oecd.org/aging/public-spending-report-2023 This dynamic, where young workers migrate to aging nations, helps sustain the economies of older countries but poses significant challenges for the sending nations, such as brain drain and a shrinking domestic workforce, issues that, while crucial, are beyond the scope of this paper.

The stark demographic contrast between Portugal and countries with younger populations underscores the urgent need for strategic policy interventions. For Portugal, addressing this issue requires a multi-faceted approach:

• Encouraging Immigration: Increasing immigration can rapidly address labor shortages and stimulate economic growth. As highlighted by  The International Journal of Migration, “targeted immigration policies can offset demographic declines by attracting skilled workers, thereby strengthening the tax base and supporting public services.”¹¹Fernandes, A., & Silva, R. (2023). Targeted immigration policies and demographic challenges. The International Journal of Migration, 35(2), 123-140.
• Boosting Workforce Participation: Extending the working life of older adults through policies that incentivize later retirement and offer flexible work arrangements can help ease the pressure on social security systems.¹²European Commission. (2023). Demographic outlook for the EU: Challenges and opportunities. European Commission Publications.
• Investing in Technology and Healthcare Efficiency: Innovations in healthcare and elderly care, such as Japan’s use of robotic caregivers and telemedicine, can reduce costs and improve service delivery.¹³Nakamura, H., & Tanaka, Y. (2022). Technological advancements in elderly care: A comparative study of Japan and Europe. Journal of Healthcare Innovations, 22(4), 89-105.
• Strengthening Social Support Systems: Countries facing demographic shifts should invest in social infrastructure, including age-friendly cities and long-term care services, to better support their aging populations.¹⁴World Bank. (2023). The economic implications of aging populations. World Bank Publications. Retrieved from https://www.worldbank.org/aging-population-impact

While a multi-faceted approach is crucial to tackling the challenges of an aging population—such as boosting workforce participation, investing in healthcare technology, and enhancing social support systems—the most efficient and immediate solution is to establish secure immigration pathways and effectively integrate newcomers into the host society. In sum, despite the relevance of these measures, prioritizing the establishment of secure immigration routes and integrating immigrants remains the fastest and most effective strategy to rebalance age demographics and ensure sustainable economic growth.¹⁵OECD. (2023). Public spending and aging populations: Policy recommendations. OECD Publishing. Retrieved from https://www.oecd.org/aging/public-spending-report-2023

A rapidly aging population presents unique challenges to economic growth, as a smaller workforce reduces productivity and weakens the tax base. Portugal’s pension system, which is primarily funded through contributions from the working population, will face increasing strain as more individuals enter retirement age. This, coupled with rising healthcare costs to meet the needs of an older population, further underscores the importance of addressing the demographic imbalance. Without interventions, such as promoting higher birth rates or increasing the active workforce, Portugal’s economy risks stagnation and an overburdened welfare system. To address these challenges, the influx of younger, economically active immigrants can help fill the labor market gaps left by the aging population. 

According to recent data,  80.5% of immigrants in Portugal are of working age, specifically between the ages of 25 and 54, which is critical for replenishing the workforce. These migrants play a vital role in supporting the labor market by taking on jobs that may be left unfilled by the local population, particularly in sectors like healthcare, elder care, construction, and technology. By boosting the labor supply, immigrants help maintain the economy’s productivity and competitiveness.

Figure 8: Source AIMA I.P. – DPEE – Direção de Planeamento, Estudos e Estatística (2024). Relatório de Migrações e Asilo 2023.

In sum, as Portugal’s aging population continues to grow, immigration can also mitigate the long-term financial burden associated with social services. By integrating more young immigrants into the labor market, Portugal can ensure a steady stream of workers to support its elderly citizens. The financial contributions of these migrants will be key to managing rising healthcare and pension costs while maintaining the quality of life for all residents. Immigrants can help ease the economic and social pressures created by an aging population, ensuring that public services remain robust and sustainable.

3.2 Contribution to Public Finances:

Population aging has been studied as one of the most important (and concerning) demographic trends of the 21st century.¹⁶Bloom, D. E., Canning, D., & Fink, G. (2010). Implications of population aging for economic growth. Oxford Review of Economic Policy, 26(4), 583-612. https://doi.org/10.1093/oxrep/grq038; Strulik, H., & Vollmer, S. (2013). Population aging and endogenous economic growth. Journal of Population Economics, 26(2), 457-478. https://doi.org/10.1007/s00148-012-0441-9; Lubet, A., Bloom, D. E., & Rosenberg, L. (2015). Global population aging: Facts, challenges, solutions, & perspectives. Dædalus, 144(2), 80-92. https://doi.org/10.1162/DAED_a_00329; Zaidi, A. (2014). Economic and social consequences of population aging: The dilemmas and opportunities in the twenty-first century. Applied Research in Quality of Life, 9(4), 921-941. https://doi.org/10.1007/s11482-014-9334-2; Maestas, N., Mullen, K. J., & Powell, D. (2016). The effect of population aging on economic growth, the labor force, and productivity. RAND Corporation Working Paper. https://www.rand.org/pubs/working_papers/WR1063-1.html; Hu, Y. (2023). Managing demographic transitions: A comprehensive analysis of China’s path to economic sustainability. arXiv. https://arxiv.org/abs/2312.11806; OECD. (2024). Demographic challenges to productivity: How to reconcile population ageing with economic growth. OECD Ecoscope. https://oecdecoscope.blog/2024/06/17/demographic-challenges-to-productivity-how-to-reconcile-population-ageing-with-economic-growth/; Bloom, D. E., & Zucker, L. M. (2023). Aging is the real population bomb. IMF Finance & Development. https://www.imf.org/en/Publications/fandd/issues/Series/Analytical-Series/aging-is-the-real-population-bomb-bloom-zucker; United Nations. (2023). World population ageing 2023: Challenges and opportunities of population ageing in least developed countries. United Nations Publications. https://desapublications.un.org/publications/world-population-ageing-2023-challenges-and-opportunities-population-ageing-least; Investopedia. (2024). 4 global economic issues of an aging population. Investopedia. https://www.investopedia.com/articles/investing/011216/4-global-economic-issues-aging-population.asp. The world’s population is expected to continue growing over the coming 50 or 60 years, reaching a peak of around 10.3 billion people in the mid-2080s, up from 8.2 billion in 2024.¹⁷United Nations Department of Economic and Social Affairs, Population Division (2024). World Population Prospects 2024: Summary of Results (UN DESA/POP/2024/TR/NO. 9). While the intensification of demographic aging is also a trend common to all European Union countries, Portugal is among the European countries with the most severe demographic challenges. It ranks as the fourth country in the EU27 with the highest proportion of elderly people (those over 65 years old), which brings significant consequences for population dynamics (Fig. 7).

There is a significant tension in public spending for Portugal, especially in areas such as pensions and public debt, which notably exceed the OECD average. Specifically, Portugal allocates 13.6% of its budget to pensions compared to the OECD’s 9.4%, reflecting a demographic challenge driven by an aging population.¹⁸United Nations, Department of Economic and Social Affairs. (2023). World population ageing 2023: Challenges and opportunities of population ageing in least developed countries. United Nations Publications. https://desapublications.un.org/publications/world-population-ageing-2023-challenges-and-opportunities-population-ageing-least The disproportionately high expenditure on pensions is indicative of Portugal’s rapidly aging demographic structure, which places a substantial burden on social security systems. According to the OECD Economic Surveys, the increasing number of retirees relative to the working-age population is stretching public finances, leaving limited fiscal space for pro-growth investments.¹⁹United Nations, Department of Economic and Social Affairs. (2023). World population ageing 2023: Challenges and opportunities of population ageing in least developed countries. United Nations Publications. https://desapublications.un.org/publications/world-population-ageing-2023-challenges-and-opportunities-population-ageing-least

Compensation for public sector employees also forms a substantial portion of Portugal’s public expenditure, consuming 11.1% of the budget, on par with the OECD average. However, Portugal’s spending on other critical areas like health (6.4% vs. 6.5% OECD average) and education (4.7% vs. 5.4% OECD) is relatively lower, suggesting a prioritization of immediate liabilities over long-term growth investments. This budget allocation reflects the pressure to sustain essential services while managing the existing debt burden, which consumes 3,6% of Portugal’s expenditure, almost double the OECD average of 1.9%. The need to service public debt exacerbates the fiscal constraints, limiting the country’s ability to fund inclusive social programs and capital investments. According to the International Monetary Fund (IMF), Portugal faces moderate medium-term liquidity risks currently. In the longer term, however, there are concerns regarding the sustainability of public finances, particularly in light of the country’s aging population. The IMF emphasizes the need for continued reforms to address potential fiscal pressures arising from increased pension and healthcare spending due to demographic shifts. ²⁰International Monetary Fund. (2023). Portugal: 2023 Article IV consultation – Press release; and staff report. https://www.imf.org/en/Publications/CR/Issues/2023/06/21/Portugal-2023-Article-IV-Consultation-Press-Release-and-Staff-Report-535040

Moreover, the low public investment rate (1.9% for Portugal versus 3.6% in the OECD) highlights a critical area of concern, particularly given the need to stimulate economic growth and productivity in the context of an aging society. The reduced fiscal flexibility to support social protection and public investment is likely to impede Portugal’s capacity to address long-term challenges, such as digitalization, infrastructure upgrades, and fostering an inclusive economy. The prioritization of pensions and debt servicing effectively crowds out investment in areas that could boost economic resilience and support future growth, emphasizing the need for structural reforms to better align public expenditure with demographic realities.

Figure 9: Source OECD (n.d.), OECD Economic Surveys: Portugal. Retrieved from OECD iLibrary.

Focusing on public health expenditures, projections indicate a significant rise in the share of GDP allocated to public health across several European countries between 2019 and 2070, with Portugal expected to experience the most substantial increase. The nation’s public health expenditure is expected to rise by 1.2% of GDP by 2040, which is the highest among the countries listed, compared to the Euro area average of 0.7%. This significant increase underscores the pressures that Portugal’s aging population is exerting on the healthcare system. The European Commission suggests that the anticipated rise in healthcare costs is largely driven by an older demographic requiring more intensive and prolonged medical care.²¹European Commission. (2024). The 2024 ageing report: Economic and budgetary projections for the EU member states (2019-2070). European Union. https://www.ecb.europa.eu/press/economic-bulletin/focus/2024/html/ecb.ebbox202405_08~5f9531042f.en.html

While other countries, such as Spain and Italy, show a substantial increase (1.0% of GDP) in health spending by 2040, Portugal’s projection stands out, highlighting the country’s demographic vulnerability. The gap between the increase in spending for the periods 2019-2040 and 2040-2070 is also noteworthy. For Portugal, the rise in spending slows down after 2040 to 0.4%, which could indicate initial challenges in adapting to an aging population, followed by a period of stabilization. However, as healthcare demands continue to grow, the fiscal burden may further limit Portugal’s capacity for other vital investments, such as education or infrastructure (OECD, 2024).

In comparison, Germany, France, and the broader Euro area project relatively moderate increases in health expenditure, suggesting that their healthcare systems may be better positioned to manage the demographic shift or have already implemented measures to mitigate future costs. For instance, Germany’s projected increase of just 0.4% by 2040, followed by a modest 0.1% up to 2070, indicates a potentially more sustainable public health framework. This contrast emphasizes the need for Portugal to reform its healthcare financing and explore efficient resource allocation to ensure that rising health costs do not crowd out other critical areas of public expenditure (IMF, 2024).

Figure 10: Source OECD (n.d.), OECD Economic Surveys: Portugal. Retrieved from OECD iLibrary.

Many countries rely on immigration as a strategic tool to maintain a robust labor force, thereby alleviating demographic pressures and safeguarding social welfare systems. According to the IMF,   leveraging immigration can help countries like Portugal address labor shortages caused by aging populations, without resorting to unpopular measures such as extending working years or cutting pension benefits. The OECD supports this view, noting that immigration can not only fill critical labor gaps but also enhance economic productivity without harming the rights of domestic workers. Similarly, the  European Commission emphasizes that a well-managed influx of younger, skilled immigrants is crucial to sustaining pension systems and preventing cuts to social security benefits, especially in the EU, where the working-age population is declining. The  World Economic Forum further underscores that strategic immigration policies can stabilize labor markets and ensure that aging societies do not have to compromise on workers’ rights or reduce pension entitlements, thus promoting inclusive and sustainable economic growth.

The fiscal impact of migration is a topic of considerable debate in Europe, particularly in Portugal, where concerns often arise regarding the potential strain on public services due to increased demand from new residents.²²European Commission. (2023). Political and social aspects of migration. Knowledge for Policy. https://knowledge4policy.ec.europa.eu/foresight/topic/increasing-significance-migration/political-social-aspects-migration_en However, migration also plays a vital role in supporting the welfare system by broadening the tax base; economically active migrants contribute significantly to public revenue, thereby helping to fund pensions, healthcare, and other social services.²³Preston, I. (2014). The effect of immigration on public finances. The Economic Journal, 124(580), 569-592.

 This dual impact (balancing resource pressures against fiscal sustainability) remains at the heart of policy discussions. In practice, however, data reveals that immigrants, especially those within the working-age range (20 to 64 years), are crucial in addressing labor market shortages and sustaining public services. According to recent figures from AIMA, approximately 80.5% of immigrants in Portugal are of working age (Fig. 8), which alleviates workforce gaps in critical sectors such as healthcare, agriculture, and construction. 

A 2023 study by the Portuguese government revealed that immigrants contribute approximately €1.1 billion in taxes annually, representing around 2.5% of Portugal’s total tax revenue.²⁴Oliveira, C. R. de. (2023). Indicadores de integração de imigrantes: Relatório estatístico anual 2023 (1ª ed.). Imigração em Números – Relatórios Anuais 8. Moreover, the influx of foreign workers helps stabilize Portugal’s social security system by expanding the pool of contributors, which is essential for maintaining the sustainability of pension payments as the population ages. 

Foreign residents in Portugal not only continue to have fewer social protection beneficiaries per taxpayer compared to nationals, but the ratio of taxpayers to the total number of residents is also more favorable for foreigners than for the overall population.²⁵Escola Profissional do Alto Lima, C.I.P.R.L. (n.d.). Imigração, pobreza e inclusão social em Portugal. Retrieved November 14, 2024, from https://epatv.pt/noticias/artigos-revista-ter/imigracao-pobreza-e-inclusao-social-em-portugal/ This demonstrates that foreigners possess a higher contributory capacity, making them crucial to the sustainability of the Portuguese social security system. The highest financial surpluses were recorded based on data series from 2022, increasing from +802.3 million euros in 2020 to unprecedented values of +968 million euros in 2021 and +1,604.2 million euros in 2022. 

In 2022, the relationship between contributions by foreigners to Portugal’s social security system and the benefits they received was significantly positive. Contributions from foreigners totaled +1,075.2 million euros in 2020, +1,293.2 million euros in 2021, and +1,861 million euros in 2022. In contrast, social security expenditures on benefits for foreign contributors were much lower, amounting to -273 million euros in 2020, -325.2 million euros in 2021, and -256.76 million euros in 2022. This favorable balance highlights the positive fiscal impact of migrants on Portugal’s public accounts, demonstrating their role in reinforcing the sustainability of the country’s welfare system.

Figure 11: Source OECD (n.d.), OECD Economic Surveys: Portugal. Retrieved from OECD iLibrary.

These facts directly contradict the narrative that migrants are a burden to the social system of Portugal. On the contrary, they play a vital role in supporting and balancing the country’s social security finances, thus contributing to the system’s long-term viability. However, like many other social issues, the relationship between immigration and social inclusion is often surrounded by myths that distort realit. Misperceptions are common and tend to skew the understanding of the true impact of immigration, leading to a narrative that doesn’t align with the facts.

In recent years, housing prices in Portugal have experienced a substantial surge, with property values increasing by 105.8% from 2015 to 2023.²⁶European Parliament. (2024, October 14). Rising housing costs in the EU: The facts [Infographics]. Retrieved from https://www.europarl.europa.eu/topics/en/article/20241014STO24542/rising-housing-costs-in-the-eu-the-facts-infographics In Lisbon, prices have risen even more sharply, with some areas recording increases of over 20% in 2023 alone. This trend has sparked widespread debate regarding the factors driving these price hikes, with many pointing fingers at the Golden Visa program, which encourages foreign investment in real estate. However, a closer examination reveals that the Golden Visa scheme, while contributing to foreign capital inflows, is not the primary culprit behind the rising housing costs (see more information about it here). Instead, a combination of supply constraints, global economic factors, and market dynamics have played a more significant role.²⁷For more see: Global Citizen Solutions. Global Intelligence Unit. Why the Golden Visa presents an opportunity to solve the housing crisis in Spain and Portugal. Retrieved November 13, 2024, from https://www.globalcitizensolutions.com/intelligence-unit/briefings/why-the-golden-visa-presents-an-opportunity-to-solve-the-housing-crisis-in-spain-and-portugal/

It is crucial to understand that the Golden Visa program accounts for only a small fraction of overall real estate transactions in Portugal. Data indicates that between 2012 and 2022, Golden Visa investments represented approximately 10% of total property acquisitions.²⁸European Commission. (2023). The impact of foreign investments on the housing market. Retrieved from https://ec.europa.eu While these investments have undoubtedly brought foreign capital into the Portuguese market, they do not alone explain the broader surge in housing prices. Instead, the limited supply of housing, especially in major urban centers like Lisbon and Porto, has been a critical factor.²⁹Instituto Nacional de Estatística (INE). (2022). Housing prices and economic indicators in Portugal. Retrieved from https://www.ine.pt Years of underinvestment in new housing developments have created a supply-demand imbalance, exacerbated by the influx of people moving to urban areas.

Overtourism and the surge in short-term rentals for tourists have significantly driven up housing prices and inflation in Portugal, especially in popular urban centers like Lisbon and Porto. The influx of tourists has increased demand for short-term accommodation, prompting property owners to convert long-term rentals into higher-yielding tourist rentals, thereby reducing the availability of housing for residents.³⁰European Parliament. (2024, October 14). Rising housing costs in the EU: The facts [Infographics]. Retrieved from https://www.europarl.europa.eu/topics/en/article/20241014STO24542/rising-housing-costs-in-the-eu-the-facts-infographics This trend has exacerbated the housing shortage, leading to price inflation in both rent and property sales. According to the European Commission, the shift towards short-term rentals has distorted the housing market, pushing prices beyond the reach of many locals and contributing to the overall inflation rate.

Additionally, global factors have contributed to inflation in housing costs. The war in Ukraine, supply chain disruptions, and rising prices for construction materials have driven up the costs associated with building new homes. At the same time, labor shortages in the construction sector have slowed down new projects, further constraining the supply of housing.³¹OECD. (2023). Portugal Economic Surveys. Retrieved from https://www.oecd-ilibrary.org The increase in mortgage rates, spurred by global interest rate hikes to curb inflation, has also played a role in driving up housing costs, making financing more expensive for both local and foreign buyers.

Despite its limited direct impact on housing prices, the Golden Visa program has played a significant role in boosting Portugal’s economic development. Since its inception in 2012, the scheme has attracted more than €6 billion in foreign investments, with a substantial portion flowing into real estate.³²Serviço de Estrangeiros e Fronteiras (SEF). (2023). Relatório de Imigração, Fronteiras e Asilo. Retrieved from https://www.sef.pt However, the benefits of these investments extend far beyond the property sector. The capital brought in by the Golden Visa program has spurred job creation, particularly in construction, hospitality, and tourism. This influx of investment has not only provided jobs but has also led to improvements in infrastructure and urban renewal projects.³³Serviço de Estrangeiros e Fronteiras (SEF). (2023). Relatório de Imigração, Fronteiras e Asilo. Retrieved from https://www.sef.pt

Moreover, the program has been instrumental in enhancing Portugal’s public finances. The taxes collected from property transactions, along with other related fees, have added to government revenues. The economic activities stimulated by these investments have created a ripple effect, benefiting sectors such as retail, construction, and services. For instance, the increase in demand for property renovations and improvements has generated employment opportunities for local contractors and suppliers, contributing to economic dynamism.

Furthermore, immigrants, including those arriving through the Golden Visa program, contribute to Portugal’s economy through consumer spending. As they integrate into Portuguese society, they drive demand for goods and services, thereby supporting economic growth. This increased consumer spending generates additional tax revenues, such as value-added taxes (VAT) and other consumption taxes, further bolstering public finances. The multiplier effect of immigrant spending is particularly beneficial in regions that are experiencing depopulation, helping to revitalize local economies and prevent further economic decline.

While the Golden Visa program has attracted foreign capital to Portugal, its impact on housing inflation has been overstated. The data clearly shows that other factors, such as limited housing supply, rising construction costs, and global economic pressures, are the primary drivers of the recent surge in property prices. Meanwhile, the program’s positive contributions to job creation, public revenue, and demographic sustainability cannot be ignored. As Portugal continues to face demographic challenges and economic uncertainties, strategic immigration policies, including the Golden Visa, remain vital tools for ensuring long-term economic resilience.

Immigration has emerged as a critical pillar of Portugal’s economic and social development, significantly contributing to the vitality of several key sectors, including healthcare, construction, and tourism. As Portugal grapples with the dual challenges of an aging population and declining birth rates, immigrants have proven indispensable in filling labor shortages, thereby sustaining productivity and competitiveness across various industries. In particular, the healthcare sector has greatly benefited from foreign workers, whose involvement ensures continuity in service delivery amidst rising demands. This influx of labor has been essential in mitigating potential disruptions in sectors vital for Portugal’s economic stability.

In addition to addressing labor market needs, the net fiscal impact of immigration in Portugal has been markedly positive. The participation of immigrants in the workforce has expanded the country’s tax base, thereby contributing to the stability of public finances. These contributions are vital in the context of Portugal’s demographic profile, where the aging population increasingly strains the social security system. Contrary to the prevalent narrative that immigrants impose a burden on public resources, their role in augmenting tax revenues underscores their integral contribution to the fiscal health of the state, particularly in supporting essential social services.

Furthermore, immigration has played a pivotal role in alleviating fiscal pressures, especially in the domains of pensions and healthcare. Given the rising number of retirees and the consequent increase in public expenditure on pensions, the presence of a younger, economically active immigrant population helps offset these costs. The contributions made by immigrants significantly surpass the benefits they draw from social security, thereby creating a favorable balance that supports the sustainability of Portugal’s welfare programs. By alleviating the burden on pension funds and healthcare costs, immigrants provide much-needed relief to public finances, enabling a more balanced allocation of resources.

Looking forward, the integration of immigrants into the Portuguese economy and society will be crucial in addressing the long-term demographic and economic challenges the country faces. Policies that facilitate the inclusion of immigrants into the labor market, coupled with strategies to harness their contributions to public finances, will be essential for ensuring Portugal’s economic resilience. By recognizing and strategically leveraging the contributions of immigrants, Portugal can secure sustainable economic growth, maintain robust social systems, and navigate the complexities of an aging population.

1. Enhance Immigration Pathways for Skilled Workers: Establish more streamlined visa processes and incentives to attract skilled immigrants, particularly in healthcare, technology, and construction, to fill critical labor gaps.
2. Strengthen Integration Programs: Invest in language courses, professional training, and community support services to better integrate immigrants into Portuguese society, ensuring they can fully contribute to the economy.
3. Expand Support for Immigrant Entrepreneurs: Create funding programs and tax incentives to encourage immigrant-led businesses, which can drive job creation and economic diversification.
4. Encourage Family-Based Immigration: Promote policies that support family reunification for immigrants, as this can help increase birth rates and foster demographic renewal.
5. Leverage Technology for Efficient Healthcare: Invest in digital health solutions and telemedicine to accommodate the rising demand for healthcare services driven by an aging population, supported by skilled immigrant healthcare workers.
6. Revise Housing Policies: Address housing supply shortages by increasing construction incentives and focusing on affordable housing projects to mitigate the impact of rising demand, including that driven by immigration.
7. Monitor and Adapt Social Security Contributions: Regularly review social security policies to ensure that the financial contributions from immigrants are efficiently used to support pensions and public services, maintaining the sustainability of Portugal’s welfare system.
8. Leverage Golden Visa Programs to Attract FDI for Strategic Development: Refine the Golden Visa program to prioritize foreign direct investment (FDI) in projects that create jobs, support technological innovation, and promote the construction of affordable housing. By channeling investments into sectors that address housing shortages and foster sustainable economic growth, Portugal can enhance both its social infrastructure and labor market resilience.