More Take-Home Pay: Portugal Pledges €500m IRS Cuts from 2027
Portugal’s new promise of lighter income-tax bills is no longer confined to the short term. After trimming personal tax in 2024 and 2025, the coalition in Lisbon has now told Parliament that another €500 million will be shaved off the IRS (Imposto sobre o Rendimento das Pessoas Singulares, Portugal’s personal income tax) revenue pot every single year from 2027 through 2029. The pledge energises talk of lighter payroll withholdings but also revives an old question: can the state afford three straight years of sizable give-aways while European funds wind down and demographic pressures rise?
Why another tax cut matters now
The headline number—€2 billion in cumulative relief by the end of the legislature—lands at a moment when households are still nursing scars from post-pandemic inflation. Disposable income grew last year, yet surveys by Banco de Portugal find that one in three families still dip into savings to pay routine bills. Against that backdrop, the promise of lower IRS rates feels concrete: wage earners will keep a little more of each pay-packet instead of waiting for year-end refunds.Economists, however, note that the timing is delicate. From 2028, Brussels expects tighter fiscal rules, and the expiry of Plano de Recuperação e Resiliência cash will subtract several hundred million euros from public-investment coffers. The government counters that a strong labour market and record tourism receipts are expanding the tax base fast enough to offset lower marginal rates.
What is changing between 2025 and 2029
Workers will notice the first wave of relief almost immediately. The 2025 budget has already cut rates up to the eighth bracket and rewrote withholding tables with retroactive effect to January. Draft figures for 2026 layer on a modest 0.3-point reduction for the first five brackets and an inflation update of 3.51 %.Then comes the marquee phase: beginning in 2027, the Treasury will knock €500 million off IRS receipts each year, pushing the cumulative tally of this legislature’s personal-tax cuts past €2 billion. Finance Minister Joaquim Miranda Sarmento told MPs that the schedule gives taxpayers and the budget “predictability,” allowing families to plan purchases such as mortgage renegotiations or electric-vehicle upgrades.
How the government plans to plug the revenue gap
Lisbon insists it will not return to the era of emergency bail-outs. Officials point to three levers. First, public-spending discipline: ministries have been told to freeze new permanent programmes unless they meet strict cost-benefit tests. Second, a tougher crackdown on tax fraud and evasion—the Fiscal Affairs secretariat is deploying advanced data-analytics to target undeclared rental income and e-commerce sales. Third, policies aimed at widening the tax base: lower corporate tax for firms that raise average wages, and an expanded IRS Jovem scheme to keep highly-skilled graduates working inside Portugal.The plan is not risk-free. The Conselho das Finanças Públicas warns that primary surpluses could swing back into deficit from 2026 unless growth outperforms expectations or spending is trimmed faster than currently projected.
Reactions across the political spectrum
Early debate in the Comissão de Orçamento, Finanças e Administração Pública revealed familiar battle lines. The Partido Socialista says it prefers sharper cuts for lower brackets only, while Bloco de Esquerda and the PCP argue that slimming IRS without a wealth-tax counterpart will widen inequality. On the right, Chega calls the €500 million yearly slice “timid,” and the Iniciativa Liberal touts its own blueprint for a €2.4 billion income-tax rollback in a single stroke. Business lobbies such as AEP celebrate the move but want parallel action on IRC, seeking a headline rate of 15 % by 2027.So far, heavyweight unions have kept their powder dry, focusing instead on wage-bargaining rounds scheduled for November, yet insiders at UGT hint they might back the cuts if the government commits to boosting deductions for union dues.
What it means for your payslip
In practical terms, Treasury models suggest a single worker earning €1 000 a month will save about €34 a year from the 2025 tweak alone, while a €3 000-a-month salary could retain an extra €207. Simulations for the 2027-2029 phase are still being finalised, but provisional spreadsheets point to a combined annual gain of €120 to €750 depending on income bracket and family size.Household-finance advisers recommend using the breathing space to bolster emergency funds or accelerate mortgage principal payments, especially as the European Central Bank is expected to keep policy rates elevated well into 2026.
Can the budget keep the lights on?
Portugal’s debt-to-GDP ratio has fallen to just under 99 %, down from 135 % at the height of the pandemic, which the government cites as proof that there is room to manoeuvre. Yet external watchdogs caution that once EU cohesion money dries up, the state must self-fund infrastructure outlays, including the Lisbon–Porto high-speed rail and the new international airport.If growth stalls or interest costs rise, policymakers may be forced to revisit the delicate balance between tax relief and public-service quality. For now, taxpayers can mark their calendars: another three-year sequence of IRS reductions is officially on the books, promising a lighter touch on pay-cheques—provided the wider economy stays on track.