2027 state budget reaches parliament with approval secured by PS

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.

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.

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.