Public Finance and the Revenue Logic of Golden Visas

Public finance is ultimately about the balance between economic growth, equity and the political feasibility of how to raise government revenues. In this regard, golden visa programmes are a relatively new public policy instrument that has been used by some governments to raise revenue by attracting capital to the country without raising taxes on any existing residents. By allowing foreign investors to invest in the country by being granted residency rights in exchange for their investment, governments are effectively monetising access to their economy and institutional environment. One of the most famous examples of this is the Portugal Golden Visa programme.

The economic rationale behind golden visas is simple: governments are constrained in their ability to provide infrastructure, public services and social programmes while also being fiscally responsible. Traditional sources of revenue (i.e., income taxes, corporate taxes and consumption taxes) tend to be politically sensitive and may reduce incentives to engage in economic activity if raised excessively. Golden visas provide an alternative means of expanding the tax base and generating new capital inflows from foreign investors.

Increasing global capital mobility will continue to drive these programs across countries. There is more mobility today than ever before. Wealthy individuals and investors can move their capital from one country/region to another in search of the best economic climate (including legal stability, access to markets, and quality of life). Because of this, governments are investing in these mobile capital sources through tax incentives, including residency rights. Golden visas are turning immigration policies into economic policies focused on achieving fiscal objectives.

For example, in Portugal, billions of euros in investments have been attracted since the launch of its golden visa program in 2012. Some estimates put the amount of capital generated through this program at more than €6 billion, with much of that money being directed towards real estate and urban developments. The heightened level of activity created by the capital infusion has also supported indirect government investment by increasing property transaction tax receipts and generating fiscal income from the construction industry and related sectors.

An excellent illustration of this greater overall impact is illustrated in urban renewal processes, both within Lisbon and Porto where the benefits of investments made via obtaining a golden visa have allowed for the restoration of historic structures and the revitalisation of surrounding areas. Such improvements can lead to an increase in property values and also provide additional economic momentum, creating a multiplying effect. From the perspective of the public finances of the area, the funds generated will create short-term inflows through the collection of fees and taxes as well as providing long-term support to the ability of the area to generate further activity by expanding the tax base.

In terms of the revenue generation associated with golden visas, there are trade-offs. While the income created through golden visa programs provides additional fiscal streams, there are concerns raised in terms of potentially having an impact on equity and efficiency. For example, if there is a large increase in demand for property, it may lead to price increases that make it more difficult for local residents to afford housing. Therefore, this will create a conflict between the goals related to generating income along with the broader social welfare objectives.

In addition, the sustainability of these programs must also be considered. Golden visa programs depend on continued investor interest, which may fluctuate based on global economic conditions, changes in regulations, and global issues. Therefore, should there be a decrease in demand for such programs, the associated inflows will also be impacted, thereby creating additional uncertainty for long-term planning associated with public funds.

Policymakers influence how investments are made via government incentives. They establish the parameters for investments in terms of minimum capital amounts and types of investments that qualify for preferential treatment using existing policy tools. There are examples of markets shifting from residential investments to commercial business and R&D (Spain) as well as capitalising on the influx of capital from the implementation of golden visa type programs.

There are several countries that offer similar programs (Spain, Greece, Malta) with differing minimum investment amounts and eligibility requirements demonstrating how each country is tailoring its program to encourage (or incentivise) specific types of investment depending on the unique economic and fiscal circumstances.

From a public finance perspective, golden visa programs can be viewed as diversifying governments' future sources of revenue. The implementation of golden visas allows governments to access the vast wealth of the world without imposing additional taxes and liabilities on their existing payers. They demonstrate the extensive inter-relationship between fiscal policy and the movement of capital around the globe.