2027 state budget reaches parliament with approval secured by PS
On Thursday the Government submitted to parliament its 2027 draft state budget, forecasting 2% growth and a surplus of 0.1–0.2% of GDP. The PS has assured its approval by saying it will abstain in the first vote.
The Government submitted to Parliament early on Thursday afternoon the draft State Budget for 2027, two days ahead of the deadline, after approving it in the Council of Ministers this morning.
The document was handed over by the Finance Minister, Joaquim Miranda Sarmento, to the Speaker of Parliament, José Pedro-Aguiar Branco.
This is the third State Budget from Luís Montenegro's government and it once again has guaranteed passage thanks to the Socialist Party (PS).
The Socialist leader, José Luís Carneiro, announced last week that the party intends to abstain in the first reading, scheduled for 28 October, after the prime minister, Luís Montenegro, provided assurances on four conditions set by the Socialists: a constitutional revision with a central role for PS and PSD, protection of current and future pensions, funding for investments that remain unfinished after the RRP and support for the recovery of municipalities and regions hit by storms.
The detailed debate and vote will take place between 29 October and 24 November, with the final overall vote scheduled for 24 November.
The Communist Party (PCP) and the Left Bloc have already announced that they will vote against the Government's proposal. The Chega party has also threatened to vote against (source in Portuguese)if the prime minister refuses to lower the retirement age and has added another demand, namely a cut in VAT on fuel and the introduction of zero VAT on a basket of essential foodstuffs. These are red lines the Government has already rejected.
The remaining parties have yet to announce how they will vote.
The President of the Republic, António José Seguro, said on Thursday that he expects a "fruitful debate" to improve people's lives "at a very difficult time".
Speaking to journalists in Parliament after meetings with the parties on the Budget proposal, the Finance Minister, Joaquim Miranda Sarmento, refused to say how much room there is for negotiations.
The Government estimates that the economic measures already adopted, which will continue to have an impact on the public accounts in 2027, will have a budgetary impact of 4.8 billion euros next year, even before taking into account any new policies to be included in the next Budget.
As for the macroeconomic scenario for next year, the Government is forecasting economic growth of 2%, in line with recent years, although this represents a slight slowdown compared with the 2.3% expected for this year.
The Government is targeting a budget surplus of 0.1% of gross domestic product (GDP) next year.
In the document, the Finance Ministry revises upwards its inflation forecast for this year to 2.9% and expects a slowdown to 2.3% in 2027.
The Government also projects that public debt will fall to 84.5% of GDP in 2027, three percentage points below the 87.5% estimated for this year.
The cost of financing public debt will weigh more heavily on the state's accounts, with the bill for interest payments rising by 23.2% to 8,217 million euros. That is equivalent to 2.4% of GDP, compared with 2% in 2026 and 2025.
Pensions, public sector wages and debt interest are among the main sources of pressure, alongside tax measures such as the updating of personal income tax (IRS) brackets, the cut in the corporate tax rate (IRC) and housing measures.
Measures on IRS, IRC, IMT and other taxes
The Finance Minister said that the 2027 Budget provides for a further cut in IRS through the updating of brackets, the specific deduction and the minimum subsistence threshold, mechanisms which, by law, have to be adjusted.
The PSD/CDS-PP government has decided to lower IRS rates from the 1st to the 6th bracket by between 0.3 and 0.5 percentage points, a measure with an estimated impact of 400 million euros, which will already be reflected in withholding tax in 2026.
The reduction will be of 0.3 percentage points in the 1st bracket, 0.5 points in the 2nd to 5th brackets and again 0.3 points in the 6th bracket.
The rates remain the same as those presented in September 2026, with retroactive effect.
The proposal also confirms a 3.88% update next year of the IRS brackets, below the 4.5% pay rise in the private sector provided for in the social concertation agreement.
In practice, this means there is a risk that the tax burden will rise for taxpayers whose pay increases by more than 3.88%. Those whose wages go up risk moving into higher IRS brackets, paying more tax and seeing all or part of their pay rise disappear.
The minimum subsistence income set out in the 2027 State Budget, which is exempt from IRS, will track the minimum wage. The annual reference value for the minimum subsistence threshold is 13,580 euros, which, divided by 14 months, corresponds to 970 euros, the minimum wage planned for 2027.
Productivity and performance bonuses, profit sharing and end-of-year bonuses will also be exempt from IRS "up to a limit of 6% of the worker's annual basic pay", according to the draft State Budget for 2027.
The Government estimates that corporate tax (IRC) revenue will fall by 99 million euros in 2027 compared with the expected outturn for 2026, a drop of 1%.
"This trend reflects the reduction of the IRC rate by 1 percentage point, whose impact on revenue should be partly offset by the expected growth in economic activity," the document states.
The impact on revenue of a 1 percentage point cut is 300 million euros.
Last year, the standard IRC rate was cut from 20% to 19%, the rate applied to corporate profits in 2026.
In 2027 the standard rate will be cut by another point, from 19% to 18%, although this rate will only apply to 2027 profits, with an impact on the public accounts in 2028.
The Government's goal is to bring the IRC rate down to 17% by 2028, cutting it by 1 percentage point a year. For micro, small and medium-sized enterprises (SMEs), the rate will be 15% on the first 50,000 euros of profit.
The tax incentive in IRC for companies that increase their average wage by at least 4.5% will also remain in place next year.
The proposal provides for a 2.3% increase in the brackets of the Municipal Tax on Onerous Property Transfers (IMT) on the purchase of urban property or an individual unit intended exclusively for housing, whether or not it is a main residence.
The purchase of homes up to 108,792 euros will be exempt from IMT where they are intended as a main residence. This represents an increase of 2,446 euros compared with this year's threshold of 106,346 euros.
The Government also expects to raise a further 300 million euros in tax in 2027 through measures to combat fuel tax fraud that were approved this year.
The draft State Budget also provides for a 5.2% increase in revenue from the tax on oil products (ISP), taking it to 3,796 million euros. The Government attributes this growth to private consumption. For 2026, ISP revenue is expected to reach 3,610 million euros.
The Government also forecasts for 2027 an increase in tobacco tax revenue of 139 million euros (8.1%), taking it to 1,864 million euros.
Revenue from the tax on alcohol, alcoholic beverages and drinks with added sugar or other sweeteners (IABA) is expected to grow by 27 million euros (7.5%), to 392 million euros.
CSI, minimum wage and public sector
The document also confirms a 50 euro increase in the solidarity supplement for older people (CSI) in 2027, with the reference value rising to 720 euros.
The Government's programme foresees this value reaching 870 euros in 2029, up from 670 euros at present.
This strengthening of the CSI has a budgetary impact of 100 million euros in next year's Budget.
Total social security spending on support for the most vulnerable older people is budgeted at 709 million euros in 2027, 38 million euros more than the amount budgeted last year.
A rise in the minimum wage from 920 to 970 euros is also planned. The tripartite agreement on pay rises and economic growth for 2025-2028, signed in October 2024 between the Government, the four employers' confederations and the UGT trade union, revised upwards the path for the national minimum wage. The agreement provides for annual increases of 50 euros, with the aim of reaching 1,020 euros in 2028.
In the public sector, the multiannual agreement in force provides for pay rises of 2.30% in 2027, with a minimum increase of 60.52 euros.
If the agreed rise goes ahead, the minimum basic wage in the public administration should rise to 995.51 euros in 2027.
The same agreement also provides for an increase in the meal allowance, currently set at 6.15 euros, of 15 cents a year until 2029.
Public guarantee maintained in 2027
The Government has also decided to maintain support for access to a first home, including the public guarantee on mortgage loans and exemptions from IMT and stamp duty for young people.
The Government plans to keep "the public guarantee on the purchase of a first home, as well as the exemptions from IMT and stamp duty on the purchase of a first permanent home".
According to data provided by the Government, these measures "have already benefited almost 120,000 young people", with an average purchase price of 200,000 euros.
The public guarantee allows the state to act as guarantor for young people up to the age of 35 buying their first home for their own permanent residence. It can cover up to 15% of the initial loan capital, allowing them to obtain 100% financing of the purchase price, without the need for a down payment.
The exemption from IMT, stamp duty and fees on the purchase of a first home by young people up to the age of 35 has been extended to properties worth up to 338,141 euros.
The Government also plans to strengthen the Porta 65 scheme, a programme to support young people renting homes, although the report does not state how much additional funding the programme will receive or whether the eligibility criteria will be changed.
Health budget down 1.5% next year
Among the key policy areas, the health budget for next year stands at 17,858 million euros, 1.5% less than the total amount the Government expects to spend this year.
According to the document, the health programme has a consolidated total expenditure of 17,858.4 million euros for 2027, below the 18,125.9 million euros the Government expects to execute this year, including funds from the Recovery and Resilience Plan (RRP).
At least 15.5 billion euros are earmarked for funding the National Health Service, 603.4 million euros (4%) more than estimated for this year.
On the spending side, the largest share of the budget goes on the purchase of goods and services (8.4 billion euros), a heading the Government wants to cut by around 4.2% compared with this year's estimate. Staff costs, the second largest item in health, will rise by 5.2% to a total of 8.2 billion euros.
Education and science budget up 1.5% in 2027
By contrast, the Government wants to increase the education budget by 1.5% next year.
The Ministry of Education, Science and Innovation will have 7,787.9 million euros for education, an increase of 1.5% on last year.
The largest share of the budget is earmarked for staff costs, which will rise by 4%, with 6,624.2 million euros expected to be spent next year.
Defence to reach 2.15% of GDP in 2027
The Government will spend 2.15% of GDP on defence in 2027, exceeding the target agreed with NATO thanks to a boost of more than 800 million euros through the European SAFE instrument for maritime surveillance and cyber defence.
The National Defence Programme has a budget of 3,170.9 million euros, of which 1,537 million euros are earmarked for salaries and military allowances.
Under the military procurement plan, budgeted priorities include the purchase of KC-390 and A-29N Super Tucano aircraft for the air force, maintenance of the submarine fleet and new offshore patrol vessels for the navy.
You can follow the presentation of the 2027 State Budget here
