If the Portuguese State managed to recover just 2 billion euros, between executive debt and the parallel economy — equivalent to around 0.7% of GDP — the 2026 budget surplus would rise from 0.1% to 0.8% of GDP. It would be 2% to 3% tax on the parallel economy, when any poor person pays 23% VAT on most purchases they make. This alone shows the true dimension of the problem. Our country loses billions of euros in taxes every year.
And who pays this bill? Those who have the least.
The parallel economy and tax fraud are not technical or abstract issues. These are mechanisms that transfer resources from the collective to the pockets of a few — generally those who have the most means of circumventing the rules. Every euro that the State lacks in VAT, IRC or IRS is a euro that stops financing hospitals, schools, pensions and social support. It is an invisible tax on poverty.
The American lesson and the Portuguese failure
National estimates point to an informal economy with values of around 34% of Portuguese GDP. International estimates, including those from the International Monetary Fund (IMF), place this value between 15% and 25% of GDP. Therefore, it would be reasonable to consider a value between 15% and 34% of GDP, well above the 5% to 8% recorded in the USA. The difference is not in the size of the economy, but in the culture of tax compliance and the authority of the tax administration.
O Internal Revenue Service (IRS) is respected, effective, independent, and equipped with robust technical and legal means. Taxpayers know that anyone who tries to deceive the State will face serious consequences. In Portugal, the opposite tends to be true: the Tax and Customs Authority (AT) operates with a shortage of resources, insufficient staff and a lack of authority. Social perception is perverse, those who evade taxes are often seen as “smart”, while those who comply are those who support the system.
The fault is not in the numbers, but in (in)action
Some try to devalue the Court of Auditors’ data, saying that the high amount of bad debt only reflects the lack of seizable assets and not AT’s failures. But that is ignoring reality.
If there are no seizable assets it is because the State did not act in time. In the past, inspectors identified seizable assets from the outset. Signs of activity were analyzed to understand whether the company was real or just a “fake business”. Today, this and other good practices have disappeared. For example, if the debt is for VAT, the tax has been assessed and paid by the consumer. If the State didn’t receive it, someone else kept the money. And why did he escape? The reason is simple: we did not act, or we acted too late.
According to data recently released by Union for Finance Personnel in Europe (UFE), based on figures released by the European Commission, the EU will lose around 50 billion euros due to VAT on trade carried out in virtual space alone. The European commission was moving forward, already in 2022 with an annual value of 90 billion in losses in VAT alone.
The Deficit Strategic Financial Services Structural Recovery Plan (PRESFED) is an example of how in the past attempts were made to correct flaws in the system, reinforcing the services’ collection and intervention capacity. Currently the dominant political discourse is that everything is fine. AT management agrees.
From tax justice to social justice
Tax justice is the basis of social justice. When the State does not collect what is due, it is not only the Budget that becomes poorer, it is social cohesion itself that is degraded.
The Portuguese tax system is based on progressivity: whoever earns more and whoever spends more, pays more. But when part of the economy breaks the rules, the tax burden falls disproportionately on labor income and on compliant taxpayers, especially the middle and lower classes. It is this silent injustice that erodes trust in democracy and institutions and demoralizes those who should be tasked with correcting this problem. It’s like being a doctor in a hospital and being unable to treat patients. Or being a teacher at a school and being banned from teaching.
Defense, sovereignty and public debt: pieces on the same board
In a European context where strategic autonomy and common defense are discussed, the soundness of public finances is a matter of sovereignty. A country that does not collect what is owed to it, that depends on the markets to finance its debt, sees its decision-making capacity and autonomy diminished.
Portugal annually pays billions of euros in interest on public debt, resources that could be invested in defense, innovation, housing and social cohesion. Each percentage point of deficit avoided represents more margin to face crises and less external dependence. Fighting fraud and the parallel economy is not just a matter of tax revenue: it is a strategic, social and moral issue.
Conclusion: act on time
There are those who say that reporting these failures is giving AT and its inspectors an “undeserved stage”. On the contrary. Pretending that nothing is happening is giving rise to impunity. The fight against tax fraud is the fight for the dignity of the State and equality of opportunities.
Because when the State fails to collect, those who pay are always the same.