The Government on Thursday early afternoon delivered to parliament the draft State Budget Law for 2027, two days before the deadline, after approving it this morning in the Council of Ministers.
The document was handed over by the Minister of Finance, Joaquim Miranda Sarmento, to the President of the Assembly of the Republic, José Pedro-Aguiar Branco.
The third State Budget of Luís Montenegro’s government once again has its approval guaranteed thanks to the Socialist Party (PS).
The Socialist secretary-general, José Luís Carneiro, announced last week the intention to abstain in the vote on the bill in general terms, which will take place on 28 October, after the Prime Minister, Luís Montenegro, gave 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 affected 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.
PCP and Bloco de Esquerda have already announced that they will vote against the Government’s proposal. Chega has also threatened to vote against (source in Portuguese)if the Prime Minister refuses to lower the retirement age and has added an extra demand, namely reducing VAT on fuel and introducing zero VAT on a basic basket of essential foodstuffs. Red lines that the government has already rejected.
The remaining parties have not yet announced how they will vote.
The President of the Republic, António José Seguro, said on Thursday that he hoped for 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 Minister of Finance, Joaquim Miranda Sarmento, declined to estimate 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 developments in recent years, but 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 Ministry of Finance raises its inflation forecast to 2.9% for this year 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 less than 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 billion 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, along with tax measures such as the updating of personal income tax brackets (IRS), the reduction in the corporation tax (IRC) rate and the housing measures.
Measures on IRS, IRC, IMT and other taxes
The Minister of Finance explained that the 2027 State Budget provides for a further reduction in IRS, through updating tax 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 2026 in withholding at source.
The reduction will be 0.3 percentage points in the 1st bracket, 0.5 percentage points from the 2nd to the 5th brackets and again 0.3 percentage 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 IRS tax brackets, below the 4.5% pay rise in the private sector set out in the social concertation agreement.
In practice this means there is a risk that the tax burden will increase for taxpayers whose pay rises by more than 3.88%. Anyone whose earnings go up could move into a higher IRS bracket, paying more tax and potentially seeing all or part of their pay rise disappear.
The minimum subsistence threshold set out in the 2027 State Budget, which is exempt from IRS, will track the minimum wage. The annual reference amount for the minimum subsistence level is 13,580 euros, which divided by 14 months corresponds to 970 euros, the minimum wage forecast for 2027.
Productivity bonuses, performance bonuses, profit-sharing and year-end bonuses will also be exempt from IRS, “up to a limit of 6% of the worker’s annual basic pay”, according to the 2027 State Budget proposal.
The Government estimates that corporation tax (IRC) revenue will fall by 99 million euros in 2027 compared with the estimated outturn for 2026, a decrease of 1%.
“This development reflects the 1 percentage point cut in the IRC rate, whose impact on revenue should be partially offset by the expected growth in economic activity,” the document states.
The impact on revenue of a one percentage point cut is 300 million euros.
Last year, the standard IRC rate fell from 20% to 19%, which is the rate applied to companies’ profits in 2026.
In 2027 the standard rate will fall by a further point, from 19% to 18%, although this rate will only be applied to 2027 profits and will therefore affect the public accounts in 2028.
The Government’s goal is to reach 2028 with an IRC rate of 17%, by cutting one percentage point per year. The rate will be 15% on the first 50,000 euros of profit for micro, small and medium-sized enterprises (SMEs).
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 autonomous unit intended exclusively for housing, whether or not it is a main residence.
The purchase of property up to a value of 108,792 euros for use as a main residence will be exempt from IMT. This represents an increase of 2,446 euros compared with this year’s threshold of 106,346 euros.
The Government expects, on the other hand, to collect an extra 300 million euros in taxes in 2027 through the measures to combat tax fraud in fuel that were approved this year.
The draft State Budget also provides for a 5.2% increase in revenue from the tax on petroleum products (ISP), taking it to 3.796 billion euros. The Government attributes this growth to private consumption. For 2026, ISP revenue is expected to total 3.610 billion euros.
The Government is also forecasting for 2027 an increase in tobacco tax revenue of 139 million euros (8.1%), to 1.864 billion 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%), reaching 392 million euros.
CSI, minimum wage and public sector
The document also confirms a 50-euro increase in the solidarity supplement for the elderly (CSI) in 2027, with the reference amount rising to 720 euros.
The Government’s programme foresees this amount rising to 870 euros in 2029, compared with the current 670 euros.
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 elderly is budgeted at 709 million euros in 2027, 38 million euros more than the amount budgeted last year.
An increase 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, revised upwards the trajectory of 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 increase goes ahead, the minimum basic salary in the public administration should rise to 995.51 euros in 2027.
The same agreement also provides for an update of the meal allowance, currently set at 6.15 euros, of 15 cents per year until 2029.
State guarantee maintained in 2027
The Government has also decided to maintain support for access to first homes, including the state guarantee on mortgage loans and IMT and stamp duty exemptions for young people.
The Government plans to continue these measures, specifically “the state guarantee on the purchase of a first home, as well as IMT and stamp duty exemptions on the purchase of a first main residence”.
According to data provided by the Government, these measures “have already benefited almost 120,000 young people”, with an average property purchase price of 200,000 euros.
The state guarantee allows the state to act as guarantor for young people up to the age of 35 buying their first home for use as their main residence. It can cover up to 15% of the capital initially borrowed, allowing buyers to obtain financing of 100% of the purchase price, without the need for a deposit.
The IMT, stamp duty and registration fee exemptions on first-home purchases for young people up to the age of 35 have been extended up to 338,141 euros.
The Government also plans to strengthen Porta 65, the programme supporting young people’s access to rented housing, although the report does not state how much the programme’s budget will increase or whether there will be changes to the eligibility criteria.
You can follow the presentation of the 2027 State Budget here