Hacker News Reader

Comment by alephnerd | Hacker News Reader

> People in Denmark pay a lot in taxes, but I haven't seen many of them rushing to leave.

The issue is salaries in Portugal are VERY VERY low - they are comparable to Poland, Romania, and Greece - yet their tax burden and cost of living is comparable to Denmark.

A 25 year old Portuguese college graduate can immigrate visa free to Denmark and double-to-triple their salary almost overnight.

The same can't be said for a Dane unless they immigrate to the US, but they're in the H1B queue like everyone else so it just isn't worth the hassle unless it's a high paying white collar job.

The EEC has a massive disparity in incomes, with average monthly wages ranging from €700 to €5,000 depending on the country, and as EEC members tend to have fairly simplified immigration policies between each other, this causes a brain drain in the countries with lower wages.

View on HN

Right, but there are two variables in that equation. If the economy were stronger and more productive people could earn higher salaries. Don't get me wrong, I don't like taxes either (I live in Switzerland and pay relatively low rates of income tax) but it just seems like a loser move to decide that the solution is to fiddle with the taxes, rather than figure out how to make it a place people can build a great life in, including salaries, services, fun, comfort, safety ... all the different things that are important to people.

> If the economy were stronger and more productive people could earn higher salaries

The issue is Portugal is very business unfriendly and human capital is weak.

It's hard to make the case to invest in Portugal when you can invest a similar amount in neighboring Spain and get a much better return.

Nor do local businesses earn enough to pay comparable to higher income countries in the Single Market - especially because Portugal essentially penalizes large employers

This means the only way to make up the salary differnce that is the cause of the brain drain is to decrease taxes for early career Portuguese.

Denmark and Portugal are nowhere near the same level of development, and what works for Denmark does not work for Portugal.

> business unfriendly and human capital is weak

Exactly. So I would focus on improving that, rather than try a quick and desperate trick of tax cuts. Why not collect the taxes and then invest them wisely in great modernised services, for example?

Becuase such changes are extremely difficult and take a generation.

Easing hiring means pissing off unions, which means you piss off voters and donors.

Simplifying entry of foreign businesses and competitors means pissing off small and medium businesses, which means you piss off voters and donors.

Shrinking Portugal's notorious bloated public sector will save money, but means firing a significant number of Portuguese, which means you piss off voters.

Shrinking Portugal's notoriously large spending on social programs will save money, but means you piss off voters.

You can't just "modernize services" overnight. It requires a generation, a lot of capital, and strategy to invest in building a High Tech industry.

> Why not collect the taxes and then invest them wisely in great modernised services, for example?

Because Portugal has had an elevated debt-to-GDP ratio for almost 20 years now, which makes it extremely difficult to get the capital to do any of the above, which means a significant amount of Portugal's tax revenue is spent on servicing those debts.

The average Portuguese gets paid too little, the average Portuguese business is too small to generate significant business taxes, and every individual Portuguese person who has hireable skills has no incentive to be paid a fraction of what they would earn in London, Frankfurt, or Madrid.

Lowering taxes for early career Portuguese in order to entice them to stay until they become mid-career is the least bad option of the multiple bad options Portugal has.

Thanks for describing the complexity clearly. I think I agree now. It's a disappointing solution that is quite possibly better than other options.

PIGS Countries don't have capital available to invest in salaries / services / fun / comfort in the first place, due to historical reasons, the 2010s debt crisis etc.

So the move of bringing people and capital by available means (tax breaks) and be less hostile to startups & companies (they have been very hostile and bureaucratic historically) is one of the few things they can do, and it works.

Romania total taxes are quite high, because we don't have tax ladders, it's one size fits all solution and it's a lot. It's that cost of living here is smaller and as result it's not that bad

Yep, but realistically, Romania (as well as Poland and the rest of Eastern Europe) will end up in the same kind of middle income trap just like Portugal within the next 10-20 years.

Indeed. Portugal got by in Europe while it could advertise its services as significantly cheaper (Italy and Greece did the same). Romania, Poland and all will live to see another nation take its place, and if not finding a way to produce high value add products and processes, face the same kind of stagnation as Portugal.

It's already started happening.

For example, in Hungary, a lot of Orban's political consolidation was itself due lagging economic growth in the aftermath of the GFC and Eurozone crisis, as well as FDI moving towards cheaper Romania, Bulgaria, and Serbia.

Hungary's HDI and GDP growth began stagnating around 2014-15, which was around the time mass dissatisfaction against Orban arose.

>Hungary's HDI and GDP growth began stagnating around 2014-15, which was around the time mass dissatisfaction against Orban arose.

It's been 10 years, and he's still in power, so I guess the Hungarian people aren't that dissatisfied with him.

> It's been 10 years, and he's still in power, so I guess the Hungarian people aren't that dissatisfied with him

Gerrymandering, control of all Hungarian language media in a country where most people are monolingual in a unique language, and selective judicial prosecution are the main things keeping Orban afloat.

Reply on news.ycombinator.com