More voices are speaking from the government led by Pedro Sánchez, echoing a line similar to the wage agreement reached in Portugal at the start of October. One of the last institutions to weigh in, the Economic and Social Council, recently supported proposals from António Costa to raise wages while using tax cuts for both companies and workers to help fund the move. Former Spanish prime minister Mariano Rajoy criticized Sánchez for what he called an attempt to pit rich against poor, while also praising the Portuguese deal himself. The Portuguese accord was signed with the main employer confederations and with the union confederation UGT, though it faced denial from the other major union, CGTP, which has ties to the broader labor movement.
One of the primary aims of the Portuguese government is to lift the share of wages in the country’s gross domestic product, which stood at 45.3 percent in 2019. The agreement targets an increase to 48.3 percent by 2026, a rise of about three percentage points. It also aims to lift the country’s average wage by roughly 20 percent over the next four years, a plan that translates to higher real earnings for many workers. The first concrete step is to improve the quality of life for workers, with the average wage rising by 5.1 percent in 2023 and a planned increase in the minimum wage from 705 euros to 760 euros next year, ultimately reaching 900 euros in 2026. Some major retailers like Mercadona and Lidl have already signaled wage hikes of up to 11 percent next year, though none of Portugal’s largest companies have announced broad revenue-related raises at this time.
tax incentives
To encourage employers to raise wages, the government would offer a corporate tax exemption for companies agreeing to a pay increase equal to or greater than 5.1 percent in 2023 and in line with the future targets. These measures include adjustments that affect the highest earners and low earners to qualify for benefits, while additional incentives are tied to investments in research and development.
On the workers’ side, the agreement includes a lower personal income tax rate by expanding the tax brackets to offset wage gains. Each tax tranche in the coming year would rise by 5.1 percent, mirroring the expected wage increases for many workers, ensuring a relatively stable tax burden despite higher salaries. There is also a plan to adjust the tax treatment of extraordinary overtime pay, with potential increases in overtime for hours beyond the standard threshold.
Opposition reaction
Although the government has stressed its willingness to reach an agreement despite its absolute majority as of January, the reality is that the deal did not win over all social partners. Some former socialist allies in the previous legislature, including BE and the Portuguese Communist Party, rejected the accord, arguing that it primarily benefits employers. They contend that wage gains do not align with the inflation trajectory, which is projected to reach around 7.8 percent this year, and that the deal could strain workers. The CGTP also argued against the agreement, linking it to a broader political stance against the compromise.
The main opposition party, the Social Democratic Party, offered a more tempered response. The PSD called the agreement insufficient and unambitious, proposing a revision of the income tax brackets in line with an inflation forecast and a 15 percent flat tax for workers under 35, with exceptions for higher earners. The PSD also criticized the deal for being negotiated at the last minute, a sentiment echoed by labor negotiators who later expressed regret about the haste of signing.
The agreement provides for ongoing monitoring and the possibility of changes over the next four years depending on the economic situation. At present, however, a majority of Portuguese citizens do not feel convinced by the terms. A public survey released early in November indicated that about two out of three people believe that the promised increases in the minimum and average wages will be insufficient across both the public and private sectors by 2026. [citation: public opinion data reported in national press]