The Organisation for Economic Co-operation and Development (OECD) has urged Portugal to reduce the tax burden on lower-paid workers, proposing a series of reforms including higher property taxes, the elimination of ineffective exemptions, and policies to boost employment among young people, women, and older workers.
In its report Foundations for Growth and Competitiveness 2026, published on Thursday, the OECD laid out measures intended to raise productivity and economic growth. The organisation warned that Portugal’s economic performance continues to lag behind that of its most advanced peers.
“Although the gap in the investment rate has narrowed, weak long-term productivity growth has led to a persistent gap in output per hour,” the report stated.
The OECD noted that the significant deficit in GDP per capita reflects a relatively underperforming Portuguese labour market. Despite historically low unemployment, employment rates among young people remain low, and there is “room for improvement” in 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 added.
The report also highlighted regulatory barriers that hinder competition. Reducing such obstacles, it suggested, would make it easier for innovative start-ups to enter the market and grow. Enhancing training and childcare services, alongside strengthening work incentives for older employees and the long-term unemployed, would help extend working lives and address skills shortages.
On taxation, the OECD pointed to Portugal’s heavy reliance on labour taxes, which disproportionately affect lower-paid workers, while property taxes remain comparatively low. Numerous tax allowances were said to cause significant revenue losses and higher compliance costs, particularly in Corporate Income Tax (IRC), which features multiple exemptions, state and municipal surcharges, and preferential rates for small and medium-sized enterprises.
To address these challenges, the OECD recommended simplifying the tax system, broadening the tax base by removing ineffective exemptions, and using the resulting fiscal flexibility to lower tax rates and labour costs for lower-paid workers. This would effectively shift the fiscal burden from employment to recurring property taxes.
Boosting productivity, the report argued, requires improving workforce skills, particularly among youth, women, and older workers. To this end, it advocated for national quality certification standards for lifelong learning and the expansion of affordable childcare, prioritising low-income and disadvantaged households.
The OECD also called for a fairer balance of protection across different contract types, encouraging the use of permanent contracts over temporary ones, which remain common, and reducing the cost of dismissals.
Addressing Portugal’s housing crisis, the report highlighted the need to improve affordability and mobility, noting that rapid increases in house prices and rents have made it difficult for young people to buy or rent, meet mortgage payments, or relocate for work.
Recommended measures included 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 rates), and increasing the supply of social rental housing.
Finally, the OECD called for higher-quality competition regulation and greater investment in the energy sector, where public investment has lagged the OECD average, warning that Portugal faces rising risks from wildfires, droughts, and sea-level increases.
