Portugal’s 2026 Budget Bets on a Slim Surplus—and Big Discipline

Portuguese families will wake up next year to a state budget that, at least on paper, still plans to spend slightly less than it collects. The draft known as OE2026 keeps Lisbon on the rarefied list of European capitals projecting a second consecutive budget surplus, even if it shrinks from 0.3 % of GDP this year to 0.1 % in 2026. Below, we unpack the figures, the political calculations behind them and the questions economists are already raising.

Why the surplus headline matters on this side of the border

The Ministry of Finance argues that a symbolic surplus shields Portugal from the market jitters that once pushed the country to an international bailout. A positive balance, however modest, gives the government room to buffer households against future ECB interest-rate spikes, cap energy subsidies if prices flare again and keep a lid on personal-income-tax brackets. For small firms wrestling with higher credit costs, a surplus also signals lower sovereign-risk premiums and thus cheaper working-capital loans.

Reading the fine print of the numbers

Behind the headline, the draft points to tax revenue climbing 3.6 %, driven mostly by payroll growth and still-solid tourism receipts. Primary expenditure is capped at +2 % in real terms, meaning wage agreements for teachers, nurses and police will be spread over three years instead of two. Debt servicing, the one line item Lisbon cannot fully control, is pencilled in at €8.7 B—almost double the pre-pandemic bill but still compatible with a surplus so long as nominal GDP expands 4 %.

The consolidation toolkit the cabinet bets on

To square the circle, Praça do Comércio plans to freeze most expansionary tax credits, postpone certain rail-infrastructure tenders until Cohesion-Fund money is secured and tighten eligibility for housing-rent guarantees. A controversial measure would reduce the VAT reimbursement window for exporters from 60 to 45 days, pulling forward roughly €400 M in cash to the Treasury. Officials insist that no major health-service cuts are on the table, citing an extra €600 M earmarked for the SNS, but hospital administrators warn the figure barely covers wage indexation.

What independent watchdogs are saying

The Public Finance Council (CFP) greeted the document with polite skepticism. Its baseline scenario assumes a shallower GDP path once EU-funded investment peaks in 2025, slicing at least 0.2 p.p. off revenue growth. Similarly, the Bank of Portugal notes that every 50-basis-point jump in yields adds another €240 M in annual interest costs, enough to wipe out the margin that turns a balanced budget into a surplus. Several university economists also question whether the government can resist pre-election pressure to sweeten pension indexation formulas.

Brussels rewrites the rulebook in 2026

Complicating the picture, the European Council has endorsed a revamped Stability and Growth Pact starting January 2026. Countries with debt above 60 % of GDP—Portugal still sits near 99 %—must present a four-year spending trajectory showing a credible debt-to-GDP decline. Lisbon’s tiny surplus is designed to prove good faith when the Commission reviews national plans next autumn. Failure to deliver could trigger a demand to cut annual expenditure by 0.5 % of GDP, a remedy fiscal doves inside the government hope to avoid.

The calendar and what to watch next

Debate in the Assembleia da República kicks off two weeks from now, with the first-round vote likely hinging on centrist abstentions rather than outright support. Expect amendments on regional health transfers, municipal housing funds and the timetable for carbon-tax hikes. If the draft survives, the surplus target will enter 2026 as the official yardstick—yet, as one finance-ministry veteran quipped, the hardest part of running a surplus is not announcing it, but living within it for twelve straight months.