The Portuguese media has been awash with stories about attempts to renegotiate the terms of the bailout negotiated by the government with the international community (The Troika). After the Irish Finance Minister went public saying Portugal should honour its obligations as they had and not ‘do a Greece’ a senior politician from Lisbon came back with the above retort. It’s a sore subject; the Portuguese are a proud people with a history of meeting their obligations yet during 2 weeks talking to people in Porto, Lisbon and Faro I’ve come to realize just how precarious the recovery is.
Food, drink and the cost of living
Eating out is a national pastime; lunches are taken seriously and out of the office. Today an average 2 course meal for 2 with wine in Lisboa will set diners back €35-40. Sounds good? Compare that with the average weekly wage of €200 and then consider that Portugal now ‘enjoys’ some of the highest priced utilities in Europe (among top 5) and you get some idea of the shift in habits that is occurring.
The imposition of a 23% tax on eating out, on wine and even on golf have all taken their toll. Its no wonder there is a campaign for a minimum monthly wage of €600 and a reversal of the pension decrease the ruling party introduced when the austerity budget was introduced. For a great breakdown of the cost of living and interesting commentary see here: Cost of Living in Portugal
Wages and disposable income
In Portugal, people earn $24 384 per year on average, less than the OECD average of $34 466. Not everyone earns that amount however. Whereas the top 20% of the population earn $30 578 per year, the bottom 20% live on $13 056 per year.
Another essential factor of employment quality is job security. Employees working on temporary contracts are more vulnerable than workers with an open-ended contract. In Portugal, close to 9% of total employees have a contract of 6 months or less, slightly lower than the average of 10% for 30 OECD countries. This figure suggests Portugal has been successful in stabilising working contracts and encouraging open-ended contracts.
Stealth taxes and the road toll debacle
Hiring a car is easy, even if the companies now rival Ryanair in dreaming up additional must have extras, using the road toll system is not. For a start the hire company will try and ‘sell’ use of a tracking device that charges the car for using any autoroute subject to a toll charge. If you refuse their tempting offer then a labyrinthine process awaits when you come to settle your tolls involving numerous trips to the Post Office most of whom are oblivious to their new responsibilities. And the galling thing: it is virtually impossible to turn around and leave the autoroute!
Three days on we still don’t know how much we owe for the first part of the Faro-Lisbon trip and we’ve been out of the country since Saturday!
The black economy
A friend who knows about such matters told me that up to 40% of trade is conducted outside of official channels. Restaurants and indeed the open top bus companies are reluctant to process credit card transactions to avoid tax – many have signs that notify you in advance and those that do not are often ok with you going back to pay later. It’s a situation many travelers will find uncomfortable.
Roll back the frontiers of the state
‘It won’t work if it’s legal’ was one chilling indictment of the authorities’ efforts to promote new ideas. Wading through treacle is how to best describe the insidious intervention of the state in an attempt to seize revenue from whichever source it can.
The most recent example is the edict by which all houses must put white posts up to signify the boundaries of their property. And of course everyone will pay for the privilege of registering his or her ‘new’ boundaries!
Barbarians at the gate
Real estate has bottomed and in Lisbon / the Lisbon coast a slight rise is being fuelled by overseas buyers from China and Russia perhaps prompted by the policy whereby rich individuals can purchase a visa permitting access to the rest of the EU.
This from CNN Money
Portugal has been offering these deals for just over a year. Foreigners receive a residency permit when they invest €500,000 in property. After five years, they can apply for permanent residency, and EU citizenship one year later. Portugal is also trading visas to those who inject capital or create jobs in the country — similar to the U.S. immigrant investor program, which requires a minimum spend of $500,000. Like those on offer in Spain, the Portuguese visas grant access to the Schengen area, which includes the bulk of the EU but not the U.K.
Official figures show more than 330 visas have been issued in the first 12 months of the program, raising €225 million.
The eternal frustration among the chattering classes I met is that the country’s promotional activities are too low key. Two examples: I had no knowledge at all about the Portuguese Army’s involvement alongside the Allies in Belgium in WW1. In reading an excellent account (balagan timeline) of their involvement I was amused to see this quote: ‘…The Portuguese soldiers hated the British rations…’ and; I was also unaware as were most I spoke to that Foreign Pensioners can reside and collect their retirement pensions in Portugal entirely tax free. Portugal has launched an aggressive measure to attract affluent worldwide pensioners to come and reside in Portugal. The lure is zero tax on such pensions.
- great food, a great climate, wonderful architecture and superb scenery;
- great roads with no one on them;
- really talented people with ideas and imagination;
- it costs less (17% of disposable income) to keep a roof over your head there than elsewhere in the OECD (21%)
- there is a lack of industrial manufacturing;
- 35% of under 25’s have no job and many are leaving and perhaps most seriously;
- there is a cadre of middle managers aged 45-60 who are in entrenched positions across the government and block ideas and the career prospects of others and;
- there is a complete lack of trust in the political parties and politicians and a general view that the increased taxation is choking growth.
Portugal will pull through, of that I’ve no doubt. There are signs of recovery and despite the national mood (which a good performance by the national team at the World Cup will lift) this period of readjustment was probably needed.
Habits are changing, as an illustration the biggest growth market appears to be in building and running residential homes for the elderly something that surprised me.