Originally aimed at helping the nation make a buck in the wake of the sovereign debt crisis, Portugal is finding out that there’s more to good governance than a budget surplus. Now, the European country wants to make significant changes to laws and programmes that court international investment at the cost of locals’ satisfaction – prompting a shifting of priorities towards investors and allies in Europe and Asia.
The first thing Portugal plans to tweak is their Golden Visa programme, first introduced in 2012 to foreign investors willing to spend 500,000 euros or more on property in the wake of the sovereign debt crisis. At the time, Lisbon’s housing market was in a shambles and decrepit buildings prevailed. But since the programme’s introduction, over 4.8 billion euros have been generated in real estate, cementing the country’s status as the second-hottest property market in western Europe. Most investment has come from China, with Brazil at a distant second. Seeking to dodge their own high tax burdens, French buyers are healthily represented as well, along with Turkey, Russia, and South Africa. With such seemingly positive results, it might seem odd that Portugal would want to scale golden visas back.
However, Prime Minister Antonio Costa and his ruling Socialist party intend to do just that, mostly targeting the now robust property markets of Lisbon and Porto in order to drive investment to regions with lower population density instead. In this way, Costa hopes to reduce the speculation in Portugal’s two largest real estate markets that have made it hard for the middle class to find affordable housing in the country’s largest cities.
Isabel Sa da Bandeira, who heads a Lisbon-based organisation called People Live Here, believes that golden visa incentives have done more to harm Lisbon and Porto than help, as they have created “huge injustices” in the housing market. “Many locals have left the city because they can’t afford to rent or buy property”, she said.
The Prime Minister agrees. Golden visas “should contribute to the recovery of the property market where it’s necessary or in areas of low population density”, Costa said in a speech. “Fortunately, it’s no longer necessary in the big urban centres”.
Others aren’t so sure. Many real estate brokers are concerned that curbing the scheme may cause investors to turn away from Portugal altogether and instead seek property in European countries that offer similar programmes, such as Cyprus, Greece, or Spain. “You can’t change the rules in the middle of the game, especially when Lisbon and Oporto account for more than half of all property purchases by golden visa investors”, said Luis Lima, head of Portugal’s Real Estate Professionals and Brokers Association. “It’s counterproductive”.
Getting foreign nationals interested in other regions of Portugal is its own challenge as well. “If this was a Portuguese national investing in China or Brazil, he would be unlikely to invest in a region that he did not know, preferring principal cities with recognised prospects of economic return and low on risk”, said Hugo Santos Ferreira, Vice President of the Association of Property Developers and Investors (APPII).
Costa has countered that “Those who now want to obtain a golden visa are also welcome, as long as their investment is made where it’s necessary”.
Meanwhile, concern remains over a lack of proper vetting of those who apply for the golden visas in the first place. Civic association of Transparency and Integrity (TI) spokesman Paulo Batalha has said that too often, visas are being awarded to individuals from states widely known for corruption and money laundering, without proper controls in place. “Portugal is being seen as the kind of rubbish bin for golden visas because it has been so relaxed in their attribution”, he told reporters.
Last year, a special European Parliamentary Committee, whose vice-chair at the time was Portugal’s former Socialist MEP Ana Gomes, called for an end to the regime “as soon as possible”. Gomes has long insisted that the programme is a form of “prostitution of the Schengen system” that has given “kleptocrats, criminals and money launderers” a fast track into Europe. It is unclear how the new changes to the visa regime will address these issues.
Parliament ruled on the 2020 budget on February 6th, including putting the new visa regime into place, and targets the country’s first budget surplus in 40 years. The economy is set to expand for the seventh year running, and property prices increased 10.3 percent in the third quarter of 2019 from a year before, which is the second-biggest gain in western Europe, after Luxembourg. However, the budget has yet to be officially declared by President Marcelo Rebelo de Sousa, without which the law cannot take effect, which in turn indicates room for a lot of lobbying going on behind the scenes.
Though the new changes won’t kick in for another year, TSF radio has reported that spooked investors – including some Chinese and Brazilian nationals – have already begun cancelling property deals in Lisbon and Porto and pulling out of the country. But the Portuguese government is attempting to restore calm to the property market and ease the cancellation of ongoing deals, and noted that rule changes will not affect any existing visa holders. Secretary of State for the Presidency of the Council of Ministers Tiago Antunes told TSF radio that “We need to spread it and explain to the market that there isn’t any kind of disturbance that justifies the cancelling of any ongoing business. There is an adjustment period which will last until the end of the year when the new rules will be applied”, Antunes said.
Meanwhile Portugal’s low tax rates, first introduced along with the golden visa programme almost a decade ago, in a bid to attract wealthy foreigners to move in, are also under fire. Now the Socialist government wants some foreign residents to start paying taxes on their pensions, and not everyone is keen on this change, with Finland and Sweden criticising Portugal for having an unfair tax system. If approved, foreign residents who apply for the so-called non-habitual resident programme will have to pay a flat 10 percent levy on their pensions. However, some foreign workers continue to be allowed to pay a flat 20 percent income tax rate.
Tiago Caiado Guerreiro, a Lisbon-based lawyer who specialises in tax legislation, said this is a smart move to silence critics from all sides. “A 10 percent tax rate on pensions is still very low and remains very attractive for foreigners”, he said.
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Not Taking Your Rubbish
Portugal isn’t just tackling foreign investors, but also foreign waste.
For years, the country has accepted rubbish from all over Europe into their own landfills. In 2018 alone, over 330,000 tons of “amber list” waste was dumped in Portugal from aboard, a 53 percent increase from the year before. From that garbage, approximately 110,000 tons ended up in 11 landfills, while the rest was processed for reuse. Amber list discard includes waste that contains hazardous substances and requires prior approval, but some of what was treated wasn’t legal for Portugal to receive.
The rate of waste imports has risen over the past two years – an effect caused by China’s strict and newly introduced limits on the amount of foreign rubbish it would import. Meanwhile Portugal has very low waste processing fees – only 9.90 euros per ton in 2019 and 11 euros in 2020, compared to the European average of 80 to 100 euros per ton. Charging a low price and processing in bulk meant Portugal could get rich off dispensing Europe’s waste.
However, residents have tired of the stinky problem and demanded that the government find a solution. “It’s impossible to live here now”, said a 69-year old woman who lives near one of the dumps close to the northern village of Sobrado. “When it smells, I’m forced to shut doors because if I don’t, it’s impossible to sleep at night”, she said.
“The country has to think whether it wants this type of business, whether it wants to be seen as Europe’s rubbish dump”, Jose Ribeiro, Mayor of Valongo – where Sobrado is located – told Reuters. Some locals worry that the landfill could cause a spike in insects, rodents, and seagulls, and could be a vector for disease. Last year, residents launched an environmental group “Jornada Principal”, which organises protests and petitions about the issue. They plan to file a lawsuit against Portugal’s environment ministry.
In addition, the European Union has challenged all member states to reduce landfilling operations by 2035 to 10 percent of where they are now, as part of larger efforts to tackle climate change and reduce emissions. Responding to pressure both at home and abroad, the Portuguese government has turned over a new leaf and made it harder to accept waste shipments.