Portugal's 2026 Budget: Higher Wages, Youth Home Tax Cuts and Defence Spending

Portugal’s State Budget for 2026 has landed in Parliament unusually early, setting the stage for weeks of number-crunching and political sparring. At first glance, households will notice higher take-home pay, a modest lift in the minimum wage, fresh incentives for first-time buyers, and a sizeable jump in Defence spending. Beneath the headlines, however, the document also rewires the way ministries manage money and sketches a cautiously optimistic path for the public debt ratio.

Why this budget matters now

A government that campaigned on fiscal rigor is promising both a tiny surplus and visible tax relief. By sending the draft one day ahead of the constitutional deadline—and just before local elections—the executive signals confidence in its 2 % economic growth forecast for next year and 2.3 % for 2026. The blueprint predicts an 87.8 % debt-to-GDP ratio by the end of the horizon, consolidating years of belt-tightening. At the same time, it replaces the much-criticised “cativos” with a 5 % ministerial reserve, granting departments limited freedom to redirect funds without a green-light from the Finance Palace in Terreiro do Paço. For voters, the mix of cautious surpluses and sector autonomy seeks to balance Brussels’ demands with national impatience over underfunded services.

Changes in your pay packet

The headline measure is a rise in the national minimum wage to €920 in January, in line with the social-partner accord that ultimately targets €1,100 at the end of the legislature. Because the personal income tax table is indexed to that floor, the first €12,880 of annual earnings will be exempt from IRS. Middle-class relief arrives through a 0.3-point cut in the marginal rates of the second to fifth brackets—for instance, the old 16 % becomes 15.7 %, while the 31.4 % tier slips to 31.1 %. In addition, every threshold moves 3.51 % higher, meaning less income is taxed at the top of each band. Finance officials insist that even taxpayers in the upper strata will benefit because the Portuguese system is progressive: the first slices of everyone’s salary enjoy the lighter rates.

Housing relief for under-35s

The much-watched IMT Jovem regime also evolves. From January, buyers aged up to 35 will pay 0 % property-transfer tax on homes worth up to €330,539, roughly €6,500 more than the present ceiling. The concession remains paired with a waiver of stamp duty and registry fees. A second tier, taxed at 8 %, now extends up to €660,982. Government data show more than 43,000 young adults have already used the scheme since its launch in 2024, saving over €77 M in levies. Officials expect the new threshold to widen eligibility without overheating prices, while critics note that supply—not taxation—remains the bigger bottleneck.

Where the money comes from and goes

On the revenue side, the headline is a planned reduction of corporate tax (IRC) to 19 % in 2026, with a preferential 15 % on the first €50,000 of profits for PME. Expenditure-wise, the standout line is a 23.2 % jump in consolidated Defence outlays to €3.77 B, a move the cabinet frames as meeting NATO goals and modernising the armed forces. The budget embeds €9.37 B from the Recovery and Resilience Plan, funneled mainly to economy, environment, housing and digital projects. Meanwhile, elderly poverty relief expands: the Solidarity Supplement for the Elderly climbs by €40 to €670, part of a wider €700 M envelope devoted to pensioners. To fund all this, the executive scraps the temporary banking levy recently ruled unconstitutional, arguing that stable tax codes foster investment.

Political road ahead

In the first reading, the coalition parties PSD and CDS-PP endorsed the draft, while the PS abstained—calling the document “austere yet negotiable.” Opposition benches filed a record 2,176 amendment proposals, spanning cheaper motorway tolls, higher pensions, zero VAT on staples and extra funds for dilapidated schools. The government warns that fiscal leeway is “close to zero,” but private talks are ongoing. The final session in late November will test whether the centrist truce holds or fresh concessions become necessary to secure passage.

Voices from outside the hemicycle

Academic economists caution that pushing the minimum wage closer to the median may squeeze career ladders and concentrate workers at the bottom end, unless productivity gains accelerate. They also fear export-oriented firms could lose competitiveness if the euro stays strong. In contrast, the UGT union celebrates the €920 mark but urges an immediate leap to €950 next year and €1,200 by 2029, citing robust employment figures and lingering inflation pressures. Property analysts welcome the higher IMT exemption yet stress that new supply, not tax tweaks, will ultimately calm overheated housing markets. Across boardrooms, the forthcoming cut in IRC is praised as long overdue, though SMEs insist that access to credit remains a bigger obstacle than headline tax rates.

Timeline to final vote

Parliament will revisit the text in committee through late November, culminating in a 27 November plenary that should deliver the definitive green or red light. If the numbers hold, Portugal will greet the new year with a fresh budget law on the books, a slightly lighter tax burden in worker pay-slips and the promise—still untested—of more flexible public management. The coming weeks will show whether those pledges survive the amendment marathon or emerge reshaped by the opposition’s calculators.