Along with the IRC, it was a bone of contention between the Government and the PS: the IRS Jovem is a “red line” for the socialists and Luís Montenegro reformulated the Government’s initial proposal by changing the exemption levels, which apply of them now on 13. years and on income up to the sixth bracket.
What are the changes compared to what is in place and the Government’s new proposal compared to its initial intention as well?
Age and era
IRS Jovem a Exemption from the IRSpartial or full, depending on the year, aimed at young people working in Portugal, after completing their studies. The regime is extended to the new proposal at 35 years of age and allows a young person to take advantage of lower rates in our pool up to 13 years of age. The Government says its initial proposal could benefit a young person for up to 17 years (between the age of 18 at the end of compulsory education and the age limit of 35). At the moment, it was only in effect during us five years for young people who, at the start of the scheme, were between 18 and 26 years old.
Exemption percentage
The Government’s new proposal replicates the existing exemption percentages, reflecting changes to the exemption percentages compared to the initial proposal. And both the current regime and the initial proposal vary the amounts of income covered.
The Government’s new proposal is as follows:
- Also 1: 100% exemption, with a limit of 55 Social Support Indexes (IAS) per year;
- Years 2 to 5: 75% exemption, with a limit of 55 IAS;
- Years 6 to 9: 50% exemption, with a limit of 55 IAS;
- Years 10 to 13: 25% exemption with a limit of 55 IAS.
The IAS must be updated — it is currently 509.26, but if it remained at that value, the limit would be around 28 thousand euros per year. This means that the Government’s proposal is for the regime to apply to incomes up to around the sixth income bracket, instead of the eighth bracket (as in the first proposal).
The Government’s initial proposal envisioned a two-thirds reduction in the current IRS rates, with a maximum rate of 15% in the penultimate (eighth) bracket, and the remaining 48% rate in the final bracket (although it would also benefit from the changes in the rest) . But there has never been total immunity as imagined with what is in place.
The current system in place has the following detailed rules:
- Also 1: 100% exemption, with a limit of 40 IAS (€20,370.40)
- Also 2: 75% exemption, with a limit of 30 IAS (€15,277.80)
- Also 3: 50% exemption, with a limit of 20 IAS (€10,185.20)
- Also 4: 50% exemption, with a limit of 20 IAS (€10,185.20)
- Also 5: 25% exemption, with a limit of 10 IAS (5,092.60)
The Government believes that the measure could help stop the emigration of young people, but the PS complained (at least about the initial version, since the position regarding the new proposal is not yet known) that it creates injustices. Pedro Nuno Santos gave an example, in the two-week debate: two single workers without children, with a salary of about two thousand euros, one of them is 35 years old and pays income tax at the end of the year 1,399 euros; and another 36-year-old who pays 4,501 euros.
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The educational criterion
In addition, as the Government has already defended and predicted the PS in its electoral program, the criterion of education was abolished, which excluded young people without a higher education degree.
The IRS Jovem currently in force applies to young people who, at the start of the regime between 18 and 26 years of agewho have category A or B income, are not considered dependents and have completed at least level four the national qualifications framework (secondary education but only that education obtained through two certification routes or secondary school education plus a professional internship). In other words, it does not include young people with up to regular secondary education. For those with a doctorate, the age extends up to 30 years, given the current rules.
Luís Montenegro, for example, criticized the limitation of the measure to young people with higher education in the debate of this fortnight on Thursday. But in the electoral program of the PS, the socialists have already proposed to solve it: “to extend the IRS Jovem to all young people, regardless of the level of education achieved, for the sake of justice and internal coherence to its extent”, says the document.
The cost
The cost of the Government’s new proposal has been set at 645 million euros“a very significant reduction” in the initial impact predicted by billion eurossays the Government.
The Jovem IRS is not immune to criticism. The International Monetary Fund (IMF) has already twice criticized the Government’s proposal for implying a “significant” loss of revenue (of a billion euros) and for not being sure it can tackle the emigration of young people. “IRS age-based preferential rates will result in a significant loss of revenue and raise questions about the cap [de idade]and its effectiveness in limiting the emigration of young people is uncertain”, defended the institute, in July. This Wednesday, he left criticism again, not only about the cost but about “equity problems”.
Luís Montenegró responded in the fortnightly debate this Thursday: “We are not here to fulfill the ideas of the IMF, but the program approved by Portugal”.
IMF warns of “significant” revenue loss with IRS Jovem. The effectiveness of emigration is “uncertain”
The Public Finance Council (CBI) has already calculated a hypothetical approval scenario and it shows a significant reduction in the projected surplus in 2025 and the risk of returning to a budget deficit situation in 2026” if the measure goes ahead.
The CBI sees the economy slowing down less but warns that the end of the PRR will have a “significant negative impact”. IRS Jovem could suggest a return to deficit
In the first proposal, the Government allowed young people who already benefit from the current IRS Youth to do the math and choose the regime that gives them the most advantage. According to EY simulations in relation to the Executive’s initial proposala worker under the age of 35 with a gross monthly salary of 1,000 euros (14 times) who has no advantage to join the IRS Jovem of the Government in the first few years.
Using the 2024 State Budget as a reference, under the current system, a young person earning 1,000 euros per month would pay an extra 222 euros in the first and second year of the application. In the third and fourth year it could also be unfavorable by 55 euros. The taxpayer would only be able to pay 443 euros less in the IRS in the fifth year of the application, in which the “discount” IRS Jovem de Costa is lower.
IRS Jovem of Montenegro starts to compensate earlier in higher salaries
In cases of higher incomes, the predictable time when the new IRS Jovem will make sense comes earlier: in the third year in the case of a salary of 1,500 euros and in the second year in the case of an income of 2,000 euros.
Article updated with the Government’s new proposal delivered to the PS