The government on Thursday submitted to parliament the 2027 state budget, projecting 2% growth and a surplus of 0.1–0.2% of GDP. Approval is assured, as the PS will abstain in the key vote.
On Thursday afternoon the Government 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.
ADVERTISEMENTADVERTISEMENTThe 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 passage once again guaranteed by the Socialist Party (PS).
The Socialist leader, José Luís Carneiro, announced last week the intention to abstain in the first overall vote, which takes place on 28 October, after the prime minister, Luís Montenegro, gave assurances on four conditions set by the Socialists: a constitutional review with PS and PSD playing a central role, protection of current and future pensions, funding for investments left unfinished after the RRP, and support for the recovery of municipalities and regions affected by storms.
The detailed debate and vote will run between 29 October and 24 November, with the final overall vote scheduled for 24 November.
The PCP and the 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 put forward an additional demand to cut VAT on fuels and apply zero VAT to a basic basket of essential foodstuffs. These are 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 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 say how much room there was for negotiations.
The Government estimates that the economic measures already adopted, which will continue to affect the public finances in 2027, will have a impact of 4.8 billion euros next year, still without 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 the pace seen in recent years, but representing a slight slowdown compared with the 2.3% expected for this year.
The Government is projecting a budget surplus of 0.1% of gross domestic product (GDP) next year.
In the document, the Ministry of Finance raises 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 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 brackets, the reduction of the corporate tax rate and housing measures.
Measures on personal, corporate and property taxes
The Minister of Finance said that the 2027 Budget provides for a further cut in personal income tax, through the updating of 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 personal income tax rates in the first to sixth brackets 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 0.3 percentage points in the first bracket, 0.5 percentage points from the second to the fifth brackets, and again 0.3 percentage points in the sixth bracket.
The rates remain the same as those presented in September 2026, with retroactive effect.
The proposal also confirms a 3.88% update of personal income tax brackets next year, 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 exceed 3.88%. Anyone earning more may be pushed into a higher tax bracket, paying more tax and seeing all or part of their pay rise eroded.
The minimum income exempt from personal income tax in the 2027 State Budget will track the minimum wage. The annual reference value for the minimum subsistence income is 13,580 euros, which divided by 14 months corresponds to 970 euros, the planned minimum wage in 2027.
Productivity bonuses, performance bonuses, profit-sharing and year-end bonuses will also be exempt from personal income tax "up to a limit of 6% of the worker's annual basic pay", according to the 2027 State Budget proposal.
The Government estimates that corporate tax revenue will fall by 99 million euros in 2027 compared with the projected outturn for 2026, a drop of 1%.
"This trend reflects the 1 percentage point cut in the corporate tax rate, whose impact on revenue should be partially offset by the expected growth in economic activity," the document states.
The revenue impact of the one percentage point cut is 300 million euros.
Last year the general corporate tax rate fell from 20% to 19%, which is the rate applied to companies' 2026 profits.
In 2027 the general rate will be cut by another point, from 19% to 18%, but this rate will apply only to 2027 profits, with an impact on the public finances in 2028.
The Government's goal is to bring the corporate tax rate down to 17% by 2028, cutting it by one percentage point a year. The rate will be 15% on the first 50,000 euros of profit for micro, small and medium-sized enterprises (SMEs).
The corporate tax break for companies that increase average wages by at least 4.5% will also remain in place next year.
The proposal includes a 2.3% increase in the brackets of municipal property transfer tax (IMT) on the purchase of an urban property or autonomous unit used exclusively for housing, whether or not it is a primary residence.
The purchase of property up to 108,792 euros in value 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 also expects to raise an extra 300 million euros in taxes in 2027 from anti-fraud measures on fuel approved this year.
The State Budget proposal also envisages a 5.2% increase in receipts from the tax on petroleum products (ISP), reaching 3,796 million euros. The Government attributes this growth to private consumption. For 2026, ISP revenue is expected to be 3,610 million euros.
The Government is also forecasting for 2027 an increase of 139 million euros (8.1%) in revenue from tobacco tax, rising 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.
Minimum income, minimum wage and civil service
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 envisages this reaching 870 euros in 2029, up from the current 670 euros.
This strengthening of the CSI will have an 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 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 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 civil service, the multi-annual agreement in force provides for pay rises of 2.30% in 2027, with a minimum increase of 60.52 euros.
If the planned rise in the agreement goes ahead, the minimum wage in the public administration should increase to 995.51 euros in 2027.
The agreement also provides for an increase in the meal allowance, currently set at 6.15 euros, of 15 cents a year until 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 Government data, 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 when they buy their first home as their main residence. It can cover up to 15% of the initial loan capital, allowing them to obtain 100% financing of the purchase price, without needing an upfront deposit.
The IMT, stamp duty and registry fee exemptions on the purchase of a first home by young people up to the age of 35 have been extended to properties worth up to 338,141 euros.
The Government also plans to strengthen Porta 65, the programme supporting young tenants, although the report does not say by how much the programme's allocation will increase, nor whether there will be changes to the eligibility criteria.
Health budget to fall by 1.5% next year
In the key policy areas, the health budget will total 17,858 million euros next year, 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 money from the Recovery and Resilience Plan (PRR).
At least 15.5 billion euros will go to 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 line item the Government wants to cut by around 4.2% compared with this year's estimate. Staff costs, the second largest item in health spending, will rise by 5.2% to a total of 8.2 billion euros.
More money for education and science in 2027
Conversely, the Government plans 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, an increase of 1.5% on last year.
The bulk of the budget is earmarked for staff costs, which will rise by 4%, with 6,624.2 million euros 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 via 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 Programming Law, the main equipment 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.
State reform sets aside one million euros for AI
The Ministry for State Reform will have a consolidated total expenditure of 107.6 million euros in 2027. "Excluding PRR-related spending, the allocation comes 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 euros, the largest share is devoted to digitalisation projects (88 million euros).
For next year, State Reform has also earmarked 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 linked to 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 adds that "the integration of AI solutions will be promoted in priority areas of the Public Administration, always with impact assessment, proper oversight and respect for the principles of trust, security and accountability".
You can follow the presentation of OE2027 here
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