While the numbers for Portugal aren’t huge — just a few dozen applications in January and an average of less than 100 a month the past decade — their impact has created an outpouring of angst. European Commission President Ursula Von der Leyen expressed dissatisfaction with golden visa programs after they reportedly provided a loophole for Russian oligarchs to avoid sanctions. Ireland stopped a similar program recently. Even post-Brexit Britain, itself badly in need of foreign investment, has tightened its non-domestic tax deal.
Europe’s politicians may not want to rely on wealthy foreigners to boost state finances, but they mostly don’t have a choice, particularly in the south. Rafael Domenech, head of economic analysis at Spanish bank Banco Bilbao Vizcaya Argentaria SA, tells me southern Europe needs many billions of euros in investment in the next 10 to 20 years just to hit its net zero targets.
It’s not a surprise then that as the Portuguese golden visa door apparently closes, tax advisers predict windows are being flung open. Spain in January introduced an update for digital nomads to the so-called Beckham law (named after the footballer who was one of the first to take advantage of the tax deal) that allows those who move to Spain to work to pay taxes as a non -resident for a six-year period. The update invites entrepreneurs, investors and professionals who are self-employed and want to relocate to Spain to pay a 24% flat tax on income of up to 600,000 euros — compared to a marginal rate of 47% on incomes over 300,000 euros for everyone else. .
Domenech at BBVA says it will take more than a year for the volume of investment from people taking up Spain’s tax deal to show up in data. But he’s already hearing anecdotal stories, especially from wealthy Londoners arriving in numbers from Britain after Brexit. A Portuguese finance expert I spoke to recently said they expect Athens too, where another flat tax deal is in place, will gain from Lisbon giving up its status as an investment destination.
On a recent trip to Portugal’s capital, I heard complaints everywhere about the dislocation blamed on the influx of thousands of wealthy foreign families in the past decade to a city with a population of just 500,000. Last year alone, an estimated net inflow of 1,300 millionaires arrived in the country, according to New World Wealth. Spiraling house prices was the main gripe. The statistics national office estimates golden visa holders had brought in 6.8 billion euros of investment, most of it channeled into real estate around Lisbon and the tourist city of Porto. The knock-on effects are evident everywhere.
One executive told me the average restaurant meal had doubled in price over the past decade, putting it out of reach of local families on a minimum monthly salary of 760 euros. Another boss said beaches that had been open to the public were now facing proposals for some sections in the coastal resort of Cascais, west of Lisbon, to be shut for the wealthy who didn’t want to mix with locals, instead preferring to sun themselves in newly built high-security condominiums.
The risk is the experience in Portugal repeats itself in Spain too, and in other parts of southern Europe. A flat tax rate intended to attract wealthy immigrants to Italy has fueled an economic boom in business capital Milan, driving up house prices there to a level where locals complain of being priced out of the city.
Southern Europe will have to balance these tensions in the next decade. What’s certain, though, is there’s a precedent it needs to avoid: the dysfunctional South American economies where high debt, inequality and low growth tore at the social fabric. Far-fetched as that may seem, it’s already on the minds of the region’s elite. “We have always thought our destiny is Argentina,” Francesco Giavazzi, an Italian economist and former advisor to Prime Minister Mario Draghi, told me a couple of years ago.
For Giavazzi, and Domenech at BBVA, EU institutions and the injection of post-pandemic funds provide a counterweight to that disturbing vision of peripheral Europe following the example of Argentina, Brazil, even Venezuela. Still, as Europe’s south courts the world’s restless elite, a study of South American economies should be required research for Europe’s politicians seeking to balance a need for investment with social stability.
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