The government on Thursday submitted to parliament the draft 2027 state budget, projecting 2% growth and a surplus of 0.1% to 0.2% of GDP. Approval is assured, as PS plans to abstain in the initial vote.
The Government submitted this Thursday afternoon to Parliament the draft State Budget bill for 2027, two days ahead of the deadline, after approving it in the Council of Ministers this morning.
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The document was delivered 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).
Socialist secretary-general José Luís Carneiro announced last week the intention to abstain in the initial overall vote, which takes place on 28 October, after Prime Minister Luís Montenegro gave 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 still to be carried out after the PRR, and support for the recovery of municipalities and regions affected by storms.
The detailed debate and voting at committee stage will run from 29 October to 24 November, with the final overall vote scheduled for 24 November.
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 introduction 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.
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, Finance Minister 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 accounts in 2027, will have an impact of 4.8 billion euros next year, not yet including new policies to be built into the next Budget.
On the macroeconomic scenario for next year, the Government forecasts economic growth of 2%, in line with the trend of 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 revises up 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 interest bill rising 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, joined by tax measures such as updating IRS brackets, cutting the IRC rate and housing measures.
Measures on IRS, IRC, IMT and other taxes
The Finance Minister said that the 2027 Budget (OE2027) provides for a fresh cut in IRS, through updating the brackets, the specific deduction and the minimum subsistence level, mechanisms that by law have to be adjusted.
The PSD/CDS-PP government has decided to lower IRS rates in the 1st to 6th 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 at source in 2026.
The reduction will be 0.3 percentage points in the 1st bracket, 0.5 points from the 2nd to the 5th bracket and again 0.3 points in the 6th bracket.
The rates remain the same as those presented in September 2026, with retroactive effect.
The draft also confirms the 3.88% update next year of IRS brackets, below the 4.5% wage increase in the private sector set out in the social concertation agreement.
In practice, this means there is a risk of the tax burden increasing for taxpayers whose pay rises by more than 3.88%. Those who earn more may move up into higher IRS brackets, paying more tax and potentially seeing all or part of their pay rise disappear.
The minimum subsistence income provided for in the State Budget for 2027, which is exempt from IRS, will track the minimum wage. The annual reference value for the minimum subsistence level is 13,580 euros, which divided by 14 months is 970 euros, the minimum wage projected for 2027.
Productivity and performance bonuses, profit-sharing and year-end gratuities 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 IRC revenue will fall by 99 million euros in 2027 compared with the estimated outturn for 2026, a decrease of 1%.
"This trend 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 of the 1 percentage point reduction on revenue is put at 300 million euros.
Last year, the general IRC rate fell from 20% to 19%, which is the rate applied to company profits in 2026.
In 2027 the general rate will fall by another point, from 19% to 18%, and this rate will only be applied to 2027 profits, affecting public accounts in 2028.
The Government’s goal is to reach 2028 with an IRC rate of 17%, cutting by one percentage point a year. The rate will be 15% for the first 50,000 euros of profit of micro, small and medium-sized enterprises (SMEs).
The IRC benefit for companies that raise their average wage by at least 4.5% will also remain in place next year.
The proposal provides for a 2.3% rise in the brackets of Municipal Tax on Onerous Transfers of Property (IMT) on the purchase of urban property or autonomous units intended exclusively for housing, whether or not it is primary and permanent.
Property purchases up to 108,792 euros will be exempt from IMT when the purpose is primary and permanent home ownership. This represents an increase of 2,446 euros compared with this year’s threshold of 106,346 euros.
The Government also expects to collect an additional 300 million euros in taxes in 2027 from measures to combat tax fraud in fuel that were approved this year.
The State Budget proposal also foresees a 5.2% increase in receipts from tax on petroleum products (ISP), reaching 3.796 billion euros. The Government justifies this growth with private consumption. For 2026, ISP revenue is expected to reach 3.610 billion euros.
The Government further anticipates an increase in tobacco tax revenue of 139 million euros (8.1%) in 2027, rising to 1.864 billion euros.
Revenue from 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 service
The document also confirms a 50-euro increase in the Solidarity Supplement for Older Persons (CSI) in 2027, with the reference amount rising to 720 euros.
The Government’s programme envisages this amount reaching 870 euros in 2029, compared with the current 670 euros.
This strengthening of the CSI has 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 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, four business confederations and the UGT, revised upwards the path for the national minimum wage. The agreement provides for 50-euro increases per year, with the aim of reaching 1,020 euros in 2028.
In the civil service, the multiannual agreement in force sets wage increases of 2.30% in 2027, with a minimum update of 60.52 euros.
If the increase set out in the agreement goes ahead, the basic public-sector pay rate should rise to 995.51 euros in 2027.
The same agreement also provides for an update to the meal allowance, currently set at 6.15 euros, of 15 cents per 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 credit for house purchases and IMT and stamp duty exemptions for young people.
The Executive foresees the "continuity" of the measures, more specifically "of the public guarantee on the purchase of a first home, as well as IMT and stamp duty exemptions on the acquisition of a first primary and permanent home".
According to data released by the Government, these supports "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 when buying their first home for primary and permanent residence. It can cover up to 15% of the capital initially borrowed, allowing buyers 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 for young people up to 35 has been extended to properties worth up to 338,141 euros.
The Government also plans to strengthen Porta 65, the youth rent support scheme, although the report does not state how much the programme’s budget will increase or whether the access conditions will change.
Health funding down 1.5% next year
Among the key areas, the health budget will amount next year to 17.858 billion euros, 1.5% less than the total amount the Government expects to execute this year.
According to the document, the programme for Health envisages total consolidated spending of 17.8584 billion euros for 2027, below the total of 18.1259 billion 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 estimated for this year.
In terms of expenditure, the largest share of the budget is for 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 funding up 1.5% in 2027
Conversely, the Government wants to increase funding for Education by 1.5% next year.
The Ministry of Education, Science and Innovation will have 7.7879 billion euros for education, representing a 1.5% increase on last year.
The bulk of the budget is allocated to staff costs, which rise by 4%, with projected spending of 6.6242 billion euros next year.
Defence reaches 2.15% of GDP in 2027
The Government will spend 2.15% of GDP on Defence in 2027, exceeding the threshold agreed with NATO thanks to a boost of more than 800 million euros through the European SAFE instrument for maritime surveillance and cyberdefence.
The National Defence Programme has a allocation of 3.1709 billion euros, of which 1.537 billion is earmarked for salaries and military allowances.
Under the Military Programming Law, the main equipment priorities in the budget include the acquisition of KC-390 and A-29N Super Tucano aircraft for the Air Force, support for the submarine fleet and new ocean patrol vessels for the Navy.
State reform sets aside one million euros for AI adoption
The Ministry for State Reform will have total consolidated expenditure of 107.6 million euros in 2027. "Excluding expenditure under the PRR, 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 is also setting aside one million euros for the adoption of artificial intelligence (AI). In the document, the Government explains that it intends "to increase the number of production use cases 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 Executive also says that "integration of AI solutions will be promoted in priority areas of the public administration, always with impact assessment, appropriate oversight and respect for the principles of trust, security and responsibility".
You can follow the presentation of OE2027 here
