The Salaried Middle
Portuguese employees in the middle of the pay scale pay social contributions on every euro they earn, VAT on most of what they spend, and an income tax whose rates climb fast at Portuguese salaries. As a group they pay about their share of the main taxes, roughly what their share of income would suggest. What sets them apart is what each of them faces at the margin, some of the highest rates in the OECD, and the fact that their income is all work, which is taxed far more heavily than capital. None of this was designed to target them; it follows from where they sit.
Earned and Unearned said that between the poor, who pay little income tax, and the rich, who pay most of it, “sits the salaried middle, which pays social contributions from the first euro, VAT on most of what it earns and a steeply rising income tax”. This essay explains why: what each of the three taxes is, why it falls where it does, how Portugal compares and what the middle gets back; and, for contrast, how much Portuguese households receive from capital, who receives it and how it is taxed.
Three taxes on one salary
Follow the cost of employing one person (Figure 1). For every euro an employer spends on a single employee, 19 cents go to Social Security from the employer and 9 more from the worker, at every level of pay. Income tax then takes nothing at the minimum wage, 7 cents at two-thirds of the average wage, 10 cents at the average wage of about €24,300, 17 cents at 1.67 times the average, about €40,500, and 26 cents at €100,000. What reaches the worker falls from 72 cents at the minimum wage to 61 at the average wage and 55 at 1.67 times the average.[1][2] VAT and other taxes on spending come on top, out of what is left.
From the first euro, with no ceiling
Social contributions are not designed as a tax on ability to pay but as an insurance premium. Each euro of wages pays 23.75 per cent from the employer and 11 per cent from the worker, 34.75 per cent in all, and builds a right to a pension and to sickness and unemployment benefits.[2] Because every euro earns a right, there is no tax-free allowance at the bottom. And Portugal has no ceiling at the top: the rate is 11 per cent for the worker at every level. In Germany, by contrast, the worker’s contribution falls from 21.5 per cent of pay at the average wage to 15.7 per cent at 1.67 times the average, because contributions stop above a ceiling.[3]
The base is wages only. Interest, dividends, rents and capital gains pay no social contributions at all.[2] So the share of someone’s income that goes in contributions depends less on how much they earn than on how they earn it. For an employee, whose income is all wages, contributions on both sides take more than income tax at every salary up to well over €100,000.
Counting the whole 34.75 per cent as tax overstates the burden, because contributions buy pension rights and insurance; but they are not a savings account either, since today’s contributions pay today’s pensions. What Contributions Buy estimates how much comes back: for a middle earner, on today’s rules and at a 2 per cent real discount rate, about four-fifths of a year’s contributions in expected value, more for those near retirement and less for the young. The rest, including 3.96 points for administration, labour solidarity and employment policy, behaves like a tax. The figures below count all of it as tax, as the OECD does.
A scale that turns steep at Portuguese salaries
Income tax is progressive: the rate on each additional euro rises with income. Two measures matter. The average rate is the share of the whole income taken; the marginal rate is the share of the next euro. For a single employee in 2025, counting contributions on both sides, the average rate on the cost of labour rises smoothly from 28 per cent at the minimum wage to 39 per cent at the average wage and 45 per cent at 1.67 times the average. The marginal rate rises in steps: 48 per cent at the average wage, 53 to 56 per cent from about €27,000, and 59 to 60 per cent from about €47,000 (Figure 2).[1]
The steps come from the brackets of the income tax scale, and the brackets are set in euros that fit Portuguese pay, which is low. In 2025 the 34.9 per cent rate applied from about €33,000 of gross salary, 1.35 times the average wage; 43.1 per cent from about €47,000; and 44.6 per cent from about €50,500. The top rate of 48 per cent started at 3.45 times the average wage, down from 5.08 times in 2013, because the brackets were frozen for years while wages rose.[4] Many experienced professionals earn in this range, where each extra euro is taxed at rates that in Germany, measured against its own much higher average wage, are reached only at the top. Compared across the OECD, Portugal’s marginal wedge at 1.67 times the average wage, 56.3 per cent, is the seventh highest of 38 countries, above Spain, Germany and the EU average (Figure 3). At the average wage, by contrast, it is below the EU average, 47.8 against 51.0 per cent.[3]
The steepest step of all, though, is not in the middle. Just above the minimum wage, Portugal withdraws a tax-free minimum, the mínimo de existência, which guarantees that no one is left with less than about €12,180 a year after income tax. For each euro earned above it, about €2.60 of the protection is withdrawn, so between about €12,200 and €13,900 of gross pay the marginal wedge reaches 64 per cent, the same as at €100,000.[1][5] A worker moving up from the minimum wage keeps little more than a third of the extra cost of employing them.
Frozen brackets also raise tax without a vote. When wages rise with inflation and the thresholds do not, more of each salary is taxed at higher rates. In 2022, with inflation at 7.8 per cent, leaving the brackets unchanged raised about €523 million, a quarter of that year’s growth in income-tax revenue.[6] Since 2025 the law updates the brackets each year by inflation and productivity, which should limit this in future.[4]
Where the income tax comes from
Why does the State lean on this group? Because the income tax base is narrow at both ends. In 2024, 6.2 million income tax returns were filed, and 44.7 per cent of them, about 2.8 million, paid no income tax at all: their incomes are too low. At the other end, the 600,000 returns declaring €50,000 or more, 9.7 per cent of the total, paid 67 per cent of all income tax. Between them, the 2.9 million returns declaring €13,500 to €50,000, 47 per cent of the total, paid 31 per cent. These shares are of income tax alone, which raised about a fifth of all public revenue; the next section puts it together with the other big taxes.[7]
When the State needed money fast, the middle is where it went (Figure 4). In 2013, the year of what the finance minister called an “enormous increase in taxes”, income tax assessed rose by 28 per cent while declared income rose by 0.2 per cent, and the share paid by households on €13,500 to €50,000 jumped from 36 per cent in 2009 to 47 per cent.[7] The reason is practical as much as political. Salaries are known to the tax authority, taxed monthly at source by the employer and hard to reclassify; the income of the self-employed, of company owners and of the rich is more varied and more mobile. A government that needs revenue quickly takes it from the income it can see.
Since then the shares have moved back towards the top, partly because the tax was cut for lower and middle incomes in 2024 and partly because many more households now declare more than €50,000 in nominal euros, 9.7 per cent against 5.8 in 2019, on a slightly different count.
Tax on what is spent
VAT is charged on spending, so what it takes from a household’s income depends on how much of that income is spent. The Banco de Portugal estimates that in 2024 VAT took 17.3 per cent of the disposable income of the poorest fifth of households, about 11 per cent in the middle fifth and 8.4 per cent in the richest (Figure 5). Measured against spending instead, the burden is almost flat, 12 to 14 per cent, slightly higher for the rich, who buy more goods at the standard rate of 23 per cent. The difference between the two measures is saving: the poor spend all they have, the rich save much of theirs.[8]
So VAT is not a tax aimed at the middle; it is heaviest at the bottom. The middle pays about the average, 10 to 11 per cent of its income, because it saves only a little. Overall, VAT undoes about a third of the redistribution that income tax achieves.[8]
Who pays, counting the three big taxes
“The rich pay most of the tax” is true of income tax and not of the tax system as a whole. Income tax raised 6.9 per cent of GDP in 2022; social contributions raised 12.2 per cent and VAT 9.4. The richest tenth of Portuguese, about 850,000 adults, pays about 68 per cent of income tax, but only about 21 per cent of social contributions, which follow wages, and about 18 per cent of VAT, which follows spending (Figure 6). Counting the three together, weighted by what each raises, the richest tenth pays about 31 per cent, the middle 40 per cent about 45 per cent and the poorest half about 24 per cent.[7][8][9]
So the richest tenth pays about three times its share of people, and roughly its share of income: it receives between 28 and 35 per cent of income, depending on how income is measured. Most of the tax, about 70 per cent, is paid by the other nine-tenths, and the largest single share by the middle 40 per cent, about 3.4 million adults. The heavy progressivity of income tax is largely offset by the flat social contributions and by VAT. What remains progressive is the tax system together with public spending, as The State’s Ledger showed: cash benefits and public services are worth far more, relative to income, at the bottom.[10][9]
Who lives on capital, and what it pays
Most Portuguese households live on wages and pensions. In 2024 they received €16.8 billion of income from property: €6.1 billion of interest, €8.9 billion of dividends, €1.6 billion from insurance and pension policies and €0.1 billion of land rent. That is 8.4 per cent of their primary income, against 69.7 per cent from wages and 14.9 per cent from self-employment. For every €100 of wages, Portuguese households received about €12 of property income; the EU average is about €17, Germany’s €22 and Italy’s €26. The amount swings with interest rates: households received €1.2 billion of interest in 2021 and €6.1 billion in 2024. Rents from letting homes are not separated in these accounts; the tax returns show about €7 billion of declared rents in 2024.[11][12]
It goes to few people. In Eurostat’s estimates by income, the richest tenth, about a tenth of the population, received between 71 and 92 per cent of household property income in each year from 2018 to 2024, against 21 per cent of wages; the surveys behind these estimates capture only a tenth of the total, so the exact share is uncertain, but the order of magnitude is not.[13] Ownership tells the same story (Figure 7). The richest tenth by wealth, about 415,000 households, hold 93 per cent of investment funds, 91 per cent of listed shares and 83 per cent of business equity, but only half of deposits and two-fifths of housing wealth. Only 7.9 per cent of households hold any shares, funds or bonds, and 30 per cent own property other than their home, 81 per cent in the wealthiest tenth.[13] As Who Gets the Profits showed, more of the profits of Portuguese firms now go to owners abroad than to Portuguese households, and about five-sixths of what reaches households goes to the richest tenth.
How is it taxed? Interest and dividends pay a flat 28 per cent, withheld at source by the bank or company, and most never appear on a tax return: of €15 billion of interest and dividends in the national accounts in 2024, only €1.1 billion was declared on returns. That does not mean the rest escaped; it was taxed at source. The Ministry of Finance, which combines withholding and returns, estimates the tax on households’ capital income, including rents and capital gains, at €1.55 billion in 2024, 0.54 per cent of GDP against 1.08 per cent in the EU. Set against households’ interest, dividends and land rent, that is about 10 per cent, against 29 per cent in taxes and contributions on wages (Figure 8). The share of all income tax attributed to capital income fell from 20 per cent in 2012 to 9 per cent in 2023.[14]
Two points temper the comparison. Dividends come out of profits that have already paid corporate tax: counting both layers, the OECD puts Portugal’s combined statutory rate on distributed profit at about 50 per cent, close to France and Germany.[15] And the 28 per cent on interest is charged on the nominal amount, including the part that only makes up for inflation. Other capital income is taxed more lightly still: rents at 25 per cent, cut to as little as 5 per cent for leases of twenty years or more; gains on shares at 28 per cent, with 10 to 30 per cent of the gain excluded for holdings of more than two years since 2024; only half of a gain on property is taxed, and none if the gain on one’s own home is reinvested in another.[16] There is no wealth tax beyond a surcharge on property above €600,000, and none of this income pays social contributions. A retired couple living on €30,000 of dividends pays 28 per cent, or as little as 6 per cent if they choose to have them taxed on the scale; a worker whose labour costs €30,000 pays 39 per cent.[17][16]
The same income, taxed differently
The weight on salaries is clearest when the same sum arrives in other forms (Figure 9). If €50,000 is what an employer spends on a salary, contributions and income tax take about 45 per cent of it. If the same €50,000 is a company’s profit paid out as a dividend, corporate tax and a municipal surcharge and then 28 per cent on the dividend take about 43 per cent. Received as interest, or counted only at the shareholder, it pays a flat 28 per cent, with no contributions.[2][17] Inherited from a parent, it pays nothing: Portugal abolished inheritance tax in 2004, and spouses, children and parents are exempt from the stamp duty that replaced it.[18]
The flat 28 per cent is not always an advantage: a person with little other income can choose to have dividends added to their income and taxed on the scale, and may pay less that way. But for anyone with a salary in the upper-middle brackets, a euro of capital income is taxed more lightly than a euro of work, and pays nothing towards Social Security.
Paying in, and getting back
Three qualifications keep the picture honest. First, the “middle class” of Portuguese political debate, salaried people on €30,000 to €50,000, is statistically near the top: the median tax household declares between €10,000 and €13,500 a year.[7] The people who feel squeezed are mostly the upper-middle.
Second, as What Contributions Buy shows, contributions are not only a tax: for a middle earner the old-age part roughly buys back its value in pension rights on today’s rules, though the unemployment cover is capped and the promise depends on rules that can change.
Third, the State spends as well as taxes. Counting all taxes, transfers and public spending, including health care and schools, the World Inequality Database finds that the middle 40 per cent of Portuguese adults roughly break even, gaining about 1 per cent over their pre-tax income, while the poorer half gains 29 per cent and the richest tenth loses 18.[10] The middle does not subsidise the State so much as pay for its own services, as The State’s Ledger showed in detail. Nor did the austerity of 2009 to 2012 fall hardest on the middle: taken together, those measures cost the poorest and the richest a larger share of their income.[19]
A position, not a target
As a group, the salaried middle does not pay more than its share: the middle 40 per cent pays about 45 per cent of income tax, contributions and VAT together, close to its share of income, as All In confirms counting everything received. What weighs on it is something else. Each employee in the upper middle faces marginal rates among the highest in the OECD, because a tax scale drawn in Portuguese euros, and frozen for years while wages rose, turns steep at ordinary professional salaries. Its income is all wages, which carry contributions from the first euro with no ceiling, while capital income, which goes mostly to the richest tenth, carries none and pays a flat rate. It is paid through the employer, so its tax is collected before it is seen. And when revenue was needed quickly, as in 2013, it was the largest base the State could reach. None of this was designed to target it; it follows from where it sits.
The ways to lighten the load are known, and each has a cost. Indexing the brackets, now in law, stops the silent rise. Widening the base, by taxing capital income, large inheritances or property more like work, would let the rates on salaries fall, but meets the objection that capital moves. A ceiling on contributions would help the upper-middle but weaken the link between contributions and pensions, or cost the pension system revenue. And the sharpest rate on a salary, just above the minimum wage, is a design flaw that could be smoothed without favouring anyone. Which of these to choose is a political decision; the arithmetic only shows where the weight now falls.
This piece was written collaboratively with Claude Opus 5.5 (Anthropic): human specification, editorial direction and critical review; machine data research, analysis and drafting. The figures and derived numbers are computed by scripts/middle.py. The salary calculations apply the 2025 rules of the IRS Code (rates as set by Lei 55-A/2025, the specific deduction, the mínimo de existência and the solidarity surcharge) and the Contributions Code to a single employee with no dependants, with the €250 general-expenses credit and no other deductions, IRS Jovem or regional rates; the annual liquidation is modelled, not monthly withholding. Without the credit, the calculation reproduces the OECD’s income tax at the average wage to the cent. Employer contributions are counted as borne by the worker, the OECD convention, which is standard in the long run but disputed in the short run. The IRS shares by band use the tax authority’s statistics, whose bands are nominal and whose method changed for 2022 onwards. VAT by quintile is the Banco de Portugal’s estimate using 2015 spending patterns. Results are in docs/middle-results.json and the figures in docs/middle-figures.html.
The cover photograph is Amoreiras Tower detail, Lisbon, Portugal by Jules Verne Times Two; CC BY-SA 4.0, via Wikimedia Commons, cropped.
Authored by: Luis Matos Ferreira — Physicist, Developer, Writer
- Earned and Unearned — how work and ownership share income, and how differently each is taxed.
- The State’s Ledger — who pays the State’s revenue and who receives its spending.
- Who Gets the Profits — where the income that is not wages goes.
- All In — everything each tenth receives and every major tax it pays.
- What Contributions Buy — what social contributions buy back in pensions and insurance.
- The Stalled Hour — why output per hour stopped growing: too little capital per worker.
- The Receiving Side — pensions and tax breaks for the better-off, and the case against taxing capital more.
- Work, Time and Money — the reading guide to the whole series.
- What We Found — the conclusions of the whole series in ten points.
- Author’s calculation for a single employee, 2025 rules: Código do IRS, arts. 25, 68 (as amended by Lei 55-A/2025), 68-A, 70 and 78-B; IAS 2025 €522.50; minimum wage €870 a month (14 payments).
- Código dos Regimes Contributivos do Sistema Previdencial de Segurança Social (Lei 110/2009), art. 53; Código do IRS, arts. 71 and 72.
- OECD, Taxing Wages 2026, database: average and marginal tax wedges and employees’ contribution rates, single person without children at 67, 100 and 167 per cent of the average wage, 2025.
- Código do IRS, art. 68 (schedules 2013–2026) and art. 68-B (automatic indexation, Lei 34/2024); OECD average wages; author’s ratios of thresholds to the average wage.
- Código do IRS, art. 70 (mínimo de existência), as in force for 2025.
- Conselho das Finanças Públicas, Evolução Orçamental das Administrações Públicas em 2022, Relatório 05/2023, Caixa 2, pp. 27–28.
- Autoridade Tributária e Aduaneira, Estatísticas do IRS: Modelo 3 returns by gross income band, 2009–2024, and Notas prévias IRS 2011–2013, pp. 8–10.
- L. Wemans and S. Sazedj, “O IVA em Portugal e a sua incidência na distribuição de rendimento”, Banco de Portugal, Boletim Económico, June 2025, pp. 55–62, Gráficos 11–13.
- Eurostat, experimental household distributional accounts, Portugal: compensation of employees (2024), consumption (2022) and income by tenth; Eurostat, government revenue (gov_10a_taxag), 2022; Eurostat population (demo_pjangroup), adults aged 20 and over, 2022: 8.53 million; author’s calculation.
- World Inequality Database, Portugal, pre-tax and post-tax national income by group, 2022 (structure estimated for 2019), as used in Earned and Unearned.
- Eurostat, non-financial transactions by sector (nasa_10_nf_tr), households, 2000–2024; author’s shares.
- Autoridade Tributária e Aduaneira, Dossier Estatístico IRS 2022–2024, Mapas 7 and 12 (income declared by category).
- Eurostat, experimental household distributional accounts, Portugal, 2015–2024; European Central Bank, Distributional Wealth Accounts, 2026-Q1; Banco de Portugal and INE, Inquérito à Situação Financeira das Famílias 2024.
- European Commission, Data on Taxation Trends 2026: taxes on capital income of households, implicit tax rates, and methodological notes (Portugal), pp. 57 and 60.
- OECD Tax Database, Table II.4, overall statutory tax rates on dividend income, 2025.
- Código do IRS, arts. 10, 40-A, 43, 71 and 72, and Lei 31/2024; Código do IMI, art. 135-A (AIMI); author’s calculations for €30,000 profiles, 2025 rules.
- Código do IRC, art. 87 (20 per cent in 2025); Lei 73/2013, art. 18 (municipal surcharge up to 1.5 per cent); author’s calculation.
- Código do Imposto do Selo, art. 6, and item 1.2 of the general table (10 per cent on gratuitous transfers).
- Avram et al., “The distributional effects of fiscal consolidation in nine EU countries”, EUROMOD working paper EM2/13, Figure 2, p. 13.
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