[spookie]

Portugal is in a weird situation where it has high taxes and at the same time the median salary is too close to the minimum wage. This is difficult to overcome, and thus salaries are stagnated.

The government has no reason, in the medium to long term, to have such high taxes. Since, by keeping high taxation the state retrieves less money in absolute terms than they would if they let wages increase and steer away from the minimum wage.

I don't think you could say that about most EU countries. Portugal really is in a bad place.

(Edit: just clarifying that the situation is different, yes taxation is high as most others but in the case of Portugal its much worse)

[alephnerd]

> The government has no reason, in the medium to long term, to have such high taxes

It does - Debt.

Portugal's debt as percent of GDP skyrocketed during the GFC and Eurozone crisis from 75.8% in 2008 to 129% by 2012.

Unlike economies with a similar debt-to-GDP ratio like Italy, Portugal's economy is a relative minnow, and doesn't have a significant domestic capital market which can at least help stem some of the issues, nor can Portugal attract FDI at the same level as much more business friendly Spain, which made income taxes their only lever.

That said, the Portuguese debt-to-GDP ratio has gotten much better (99.10% in 2023), but that was because of how much of the Portuguese budget was spent on servicing debt.

[rsynnott]

It’s presumably very _cheap_ debt, though? Ireland’s in a somewhat similar situation (don’t be fooled by the headline debt to GDP figure; Ireland’s GDP is distorted to the point that the government has had to make up its own adjusted metrics), though it’s currently running big budget surpluses, and from time to time someone will ask “why, instead of lowering taxes and investing in infrastructure, are we not using this surplus to pay down debt?” And the answer is that the average cost of the debt is 1.5% (the expensive stuff from the financial crisis has largely refinanced). It makes little sense to aggressively pay down debt at those sorts of rates.

[s1artibartfast]

A quick google search indicated debt interest is about 5% of the national budget.

This does seem low in comparison to the US, where ~17% of the national budget is spent servicing debt interest. For context, this is approximate 1.5X what we spend on national defense. [1]

https://www.investopedia.com/why-interest-payments-are-blowi...

[rsynnott]

Huh. Ireland’s is about 2.5% (3.1bn on 119bn budget next year). Slightly puzzled at what’s going on with the US debt; that does seem very expensive. Though it’s not _entirely_ comparing like for like, in that states have their own separate budgets in the US (local authorities in Ireland do too, but their own revenue raising capabilities are very limited and most of the money comes from central government).

Looks like the US’s cost of servicing works out to about 3.4%, which definitely seems rather high (though, probably still not high enough that you’d necessarily want to aggressively pay it down; 3.4% isn’t a _great_ return). Actually, I’d wonder how much of this is related to the debt ceiling stuff; I would assume that makes refinancing when debt is cheap more difficult.

[s1artibartfast]

for Ireland, are you talking about % GDP or %governmental budget.

I don't know how or if the debt ceiling has any impact on refinancing.

[rsynnott]

% budget. Debt servicing is about 0.5% GDP, but Ireland’s GDP is so massively distorted that it’s not really worth paying attention to.

[spookie]

I'm aware, but we have been in that situation for almost a decade now. I'm portuguese.

I just think we would've gotten through this sooner by making use of the invisible hand and lead businesses to be able to prosper more and as a result, higher wages. This would lead to more modest taxes having a higher wield to the state.

As it stands, they are taxing people for a very low absolute amount in the end. Not to mention that taxes go way lower the closer you are to minimum wage (a good thing, but it also shows how little they gain from this strategy). In the meantime they strangle any small to medium sized company, which are the ones driving the wages for most.

[thatfrenchguy]

It's not that weird, France is in the same situation.

[spookie]

It's similar, in relative terms. In France the minimum wage is currently at 75.5% of the median, in Portugal it is 73.1%.

However, the issue lies in the absolute amounts. In France, the median (monthy) is 2340€, but in Portugal it is 1039€.

When you are taxed in relative terms this amounts to quite a big difference when comparing what both government get from their citizens.

I concur that France's cost of living is higher and that I'm wayyyy oversimplifying it.