The government on Thursday early afternoon submitted 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 Speaker of the Assembly of the Republic, José Pedro Aguiar-Branco.
The third State Budget of Luís Montenegro's government has its approval once again assured by the Socialist Party (PS).
The Socialist leader, José Luís Carneiro, announced last week the intention to abstain in the vote on the general principles, scheduled for 28 October, after the prime minister, Luís Montenegro, offered assurances on four conditions put forward by the Socialists: a constitutional review with a central role for PS and PSD, protection of current and future pensions, funding for investments that remain unexecuted after the PRR 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 set for 24 November.
The PCP and Left Bloc 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 another demand: a cut in VAT on fuel and the adoption of zero VAT on a basket of essential foodstuffs. Red lines 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 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 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 affect public finances in 2027, will have an 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 outlook for next year, the government is forecasting economic growth of 2%, in line with recent trends but representing a slight slowdown compared with the 2,3% expected for this year.
The government is aiming for a budget surplus of 0,1% of gross domestic product (GDP) next year.
In the document, the Ministry of Finance 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 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 rising 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 indexation of IRS brackets, the cut in the IRC rate and housing policies.
Measures on IRS, IRC, IMT and other taxes
The Minister of Finance announced that the 2027 State Budget provides for a further cut in IRS, through updating the 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 reduce 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 points from the 2nd to the 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% wage increase in the private sector provided for in the social concertation agreement.
In practice, this means there is a risk of the tax burden rising for taxpayers whose wage increases exceed 3,88%. Anyone earning more risks moving up an IRS bracket, paying more tax and seeing all or part of their pay rise swallowed up.
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 projected for 2027.
Productivity and 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 draft State Budget for 2027.
The government estimates that IRC revenues will fall by 99 million euros in 2027 compared with the estimated outturn for 2026, a drop 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 revenues of the one-point cut is 300 million euros.
Last year, the standard IRC rate fell from 20% to 19%, which is the rate applied to corporate profits in 2026.
In 2027 the standard rate falls by another point, from 19% to 18%, and will only be applied to 2027 profits, with an impact on public finances in 2028.
The government's goal is to reach 2028 with an IRC rate of 17%, 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 IRC benefit for companies that raise average wages 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 primary residence.
The purchase of property worth up to 108.792 euros for use as a primary 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 raise a further 300 million euros in taxes in 2027 from anti-fraud measures in the fuel sector approved this year.
The draft State Budget also provides for a 5,2% increase in revenue from the tax on petroleum products (ISP), to 3.796 million euros. The government attributes this growth to private consumption. For 2026, ISP revenue is expected to total 3.610 million euros.
The government is also forecasting for 2027 a rise in tobacco tax revenue of 139 million euros (8,1%), 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%), reaching 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 provides for this amount to reach 870 euros in 2029, compared with 670 euros at present.
This reinforcement of the CSI has a budgetary impact of 100 million euros entered 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 wage enhancement and economic growth for 2025–2028, signed in October 2024 between the government, the four employers' confederations and the UGT, revised upwards the path 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 increase set out in the agreement goes ahead, the minimum 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 per year up to 2029.
State guarantees maintained in 2027
The government has also decided to maintain support for access to first homes, including the public guarantee on mortgage loans and IMT and stamp duty exemptions for young people.
The government foresees the "continuation" of these measures, specifically "the public guarantee on the purchase of a first home, as well as IMT and stamp duty exemptions on the purchase of a first permanent home".
According to data released by the government, these schemes "have already benefited almost 120,000 young people", with an average property 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 principal, making it possible to obtain financing for 100% of the purchase price, without the need for an upfront deposit.
The exemption from IMT, stamp duty and fees on the purchase of a first home for young people up to 35 has been extended to properties worth up to 338.141 euros.
The government is also planning to strengthen Porta 65, the housing benefit scheme for young tenants, although the report does not state how much the programme's budget will be increased or whether the eligibility criteria will change.
Health budget down 1,5% next year
Within the main spending areas, the health budget will total 17.858 million euros next year, 1,5% less than the total amount expected to be executed 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 (PRR).
At least 15,5 billion euros is earmarked for financing the National Health Service, 603,4 million euros (4%) more than the estimate for this year.
On the spending side, the largest share of the budget goes to 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. Staff costs, the second-largest item in health, will rise by 5,2% to a total of 8,2 billion euros.
Education and science funding up 1,5% in 2027
In contrast, the government wants to increase funding for education by 1,5% next year.
The Ministry of Education, Science and Innovation will have 7.787,9 million euros for education, a 1,5% increase on last year.
The bulk of the budget is allocated to staff costs, which will rise by 4%, with 6.624,2 million euros planned for 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 via the European SAFE instrument for maritime surveillance and cyberdefence.
The National Defence Programme has a budget allocation of 3.170,9 million euros, of which 1.537 million euros is earmarked for salaries and military allowances.
Under the Military Programming Law, the main equipment priorities include the purchase of KC-390 and A-29N Super Tucano aircraft for the Air Force, support for the submarine fleet and new offshore patrol vessels for the Navy.
State reform sets aside one million euros for AI adoption
The Ministry for State Reform will have consolidated total expenditure of 107,6 million euros in 2027. "Excluding PRR-related spending, the allocation amounts to 96,8 million euros, representing growth of 27,1% compared with the estimate for 2026," the budget report states.
Of this 107,6-million-euro total, the largest share is earmarked for digitalisation projects (88 million euros).
For next year, State Reform is also setting aside one million euros for the adoption of artificial intelligence (AI). In the document, the government says it wants to "increase the number of use cases in production associated with the national large language model (LLM) Amália" and to increase the "number of AI solutions in production in the public administration supported by the AI Centre of Excellence at ARTE".
The government also says that "the integration of AI solutions will be promoted in priority areas of the public administration, always with impact assessments, proper oversight and respect for the principles of trust, security and accountability".
You can follow the presentation of the 2027 State Budget here
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