Portugal’s 2026 Budget Opens: Minor Tax Breaks, Big Political Stakes

The corridors of São Bento are expected to be unusually tense today. As MPs gather to open the first round of discussion on the 2026 State Budget, the end-result—approval in principle—looks locked in. Yet the road to that vote is likely to expose deep ideological rifts over tax cuts, public debt and the future size of the Portuguese State.

Why this morning’s session is more than a formality

Under Portugal’s rules, a budget only needs to clear today’s vote “in general” before entering a marathon line-by-line negotiation. That distinction usually drains suspense from the opening debate. Not this year. Because the PSD–CDS minority coalition requires outside support to govern, every procedural step becomes a test of its staying power. Lisbon insiders note that an “exigent” abstention by the Socialist Party gives Prime Minister Luís Montenegro breathing room—for now—while reminding him that the larger opposition bench can derail the document later if key concessions are ignored.

The headline figures the Government wants you to remember

Finance Minister Joaquim Miranda Sarmento’s pitch is built around continued budget surpluses and lower debt. The plan foresees a 0.3% of GDP surplus in 2025, easing to 0.1% in 2026, and a public-debt ratio slipping to 87.8% of GDP. For households, the most eye-catching pledge is a modest IRS rate cut: brackets from the second to the fifth step will each drop 0.3 pp, and all thresholds rise by roughly 3.5%. Companies are offered a 1 pp reduction in the headline IRC rate to 19%, the first leg of a three-year glide path toward 17%.

Opposition lines of attack

On the right, Iniciativa Liberal brands the document “timid” and says it could have been written by the Socialists themselves because it still leans on rising tax revenue rather than structural reform. Chega’s André Ventura denounces what he calls a policy of “fiscal asphyxiation” that keeps fuel duties and a large public sector intact. Meanwhile, the left flank—PCP, Bloco de Esquerda and Livre—argues the coalition is under-investing in public services while offering gifts to business. Each camp promises dozens of amendments when the bill enters committee next week.

What changes for your wallet in 2026

Beyond rate tweaks, the Government proposes a fresh IRS exemption for productivity bonuses up to 6% of annual base pay, provided wages also rise. Landlords would see their flat 25% levy on rents under €2,300 fall to 10%, a move designed to coax homes back onto the long-term market. Small and medium-sized enterprises gain a special 15% IRC tier on the first €50,000 of taxable profit, while plug-in hybrid cars emitting under 80 g CO₂ gain friendlier autonomous-tax brackets. On the consumption side, IVA on non-luxury housing construction drops to 6% under the “Construir Portugal” plan.

Spending promises: health and schools under the microscope

Health absorbs more than €17 B in the draft, including €249 M to ease pressure on urgent-care units and €245 M to expand palliative and long-term networks. Education funding rises 6%, or €621 M, with an earmarked envelope to finally quantify pupils left without classes—a statistic that has haunted successive ministers. Critics reply that inflation will chew through much of the increase and warn of new budgetary “captive” funds that could limit real-world impact.

Brussels’ shadow looms large

Although the document remains within the EU’s 3% deficit cap, Portugal must now respect a tougher yardstick: net expenditure growth agreed under the bloc’s revamped fiscal pact. Government economists insist Lisbon is compliant once defense-investment flexibility is factored in. More skeptical voices—from the fiscal watchdog to Fitch Ratings—see optimistic revenue assumptions built on one-off items. Their baseline calls for a deficit nearer 0.7% of GDP in 2026.

Key dates on the parliamentary calendar

The budget moves to the Finance Committee the moment today’s plenary ends. Ministers face back-to-back hearings until 7 November, the deadline for amendment filings. The decisive floor vote is pencilled in for 27 November. Should the Socialists harden their stance before then, the coalition will need the smaller PAN or JPP to avoid defeat—an arithmetic that keeps deal-making fluid.

What to watch between now and final approval

Portugal’s economic backdrop remains relatively benign: GDP is expected to grow 2.3% next year, tourism is holding up, and the labour market is near record employment. Yet higher ECB rates and slowing euro-area demand could trim tax receipts. If revenue undershoots, critics may claim the promised surplus was always political theatre. Conversely, another year of black-ink accounts would strengthen Lisbon’s hand when negotiating EU recovery-fund milestones and could even speed up the next round of IRS cuts. Either way, the debate beginning today sets the fiscal tone for 2026 and will signal whether minority rule can survive a full term.