Portugal is one of the Eurozone countries where immigrants help most to reduce the costs of ageing, and yet a fiscal adjustment of 2.9 percentage points of GDP is needed to ensure the sustainability of public finances.

This conclusion is from the study "The Costs of Building Walls: Immigration and the Budgetary Burden of Aging in Europe," published by Jornal de Negócios, which reveals that in an extreme scenario of zero immigration, the tax burden would need to be increased to 43% of GDP.

Foreign workers in Portugal represent a significant net contributor to Social Security. In 2023, it reached a peak, with social contributions from immigrants in Portugal reaching €2.677 billion, while social benefits received amounted to €484 million. In 2024, these contributions represented €2.2 billion for the Social Security system, with foreign workers receiving €380 million in social benefits.

At the time the new foreigners' law was approved, the figures reveal the weight of the immigrant population in the country's workforce. But the study by two economists from Nova SBE and an economist from Stockholm University – Institute for International Economic Studies (IIES) goes further and assesses its long-term importance for public finances, particularly in paying the so-called "cost of ageing."

Cost of aging

"Aging represents a major challenge for developed economies, particularly in Europe. In recent decades, the proportion of working-age individuals in the population has been declining, as fertility rates decline and life expectancy continues to increase," warn economists Tiago Bernardino, Francesco Franco, and Luís Teles Morais.

This trend represents a burden on public finances, as tax and social security contributions fall as the proportion of the working-age population declines. At the same time, public spending increases, primarily on pensions and health services.

According to estimates released by the National Statistics Institute (INE), by 2057, Portugal will no longer have ten million inhabitants. By 2100, the country will continue to lose population and will be left with only 8.3 million residents, compared to the current 10.7 million. In a scenario in which Portugal no longer receives immigrants, the population will fall to 5.99 million. The situation could become even more serious given declining fertility rates and continued very low migration, with the resident population in Portugal potentially reaching 5.4 million by 2100.

Given this scenario, economists Tiago Bernardino, Francesco Franco, and Luís Teles Morais warn of the importance of immigrants' contributions to mitigating the costs of ageing. "Portugal and Slovenia are the countries that benefit most from net migration, unlike Luxembourg or Lithuania, where current migration has contributed to a greater increase in the budget rebalancing tax. The different impacts of migration across countries are a consequence of diminishing returns to migration," they emphasize.

Immigrant contribution

"Portugal appears to be one of the Eurozone countries where immigrants contribute most to reducing the costs of ageing. And it is one of the few countries, considering a 30-year-old worker who stays until the end of their [active] life, where the net contribution the immigrant makes is higher than that of an average national worker," explains Tiago Bernardino in a statement to Now.

The economist also explained to Jornal de Negócios that "in the baseline scenario, to restore budgetary balance in light of the estimated ageing, the net contribution of the average 30-year-old native taxpayer would need to increase by 631 euros per year," but "without immigration, this figure rises to 1,700 euros per year." In other words, immigrant workers allow for a lower tax burden on nationals.

That is, in a baseline scenario, in which the influx of immigrants remains at 0.5% until 2100. To ensure the sustainability of public finances in the face of ageing, an additional fiscal adjustment of 2.9 percentage points of GDP is necessary, but in the zero-immigration scenario, the fiscal effort rises to 10.8 percentage points of GDP, that is, of the tax burden.