Budget talks open with clash over public accounts and spending limits
Portugal's 2027 State Budget negotiations have begun with a sharp dispute over the nation's finances, as former Finance Minister Mário Centeno warned that 12 billion euros in cuts may be needed over the next two years if European fiscal targets remain unchanged. The political left also accused the Government of "institutional disrespect" before talks even began.
Centeno warns of 'deep deficit'
The former Portugal Finance Minister, now reacting from outside government, challenged the official narrative of a budget surplus. The reported 0.5% surplus from the first half of 2026, Centeno argued, only exists because the Social Security balance is included in the calculation. Strip that out, and the public accounts show a "deep deficit".
Centeno, who served under Prime Minister António Costa, said the Government has "squandered" previous budget cushions, particularly through tax cuts without establishing financial reserves. Speaking to Conversa Capital on Antena 1, he criticised both the current administration's IRS reduction and one-off pension bonuses, as well as opposition proposals from the Socialist Party and Chega for zero VAT on food baskets and fuel tax cuts.
Asked about a potential return to politics, Centeno said he follows the maxim of "never saying never." He also questioned the 400 million euro purchase of capital in REN — the Portugal-based energy grid operator — financed through debt during a period of high interest rates.
Livre demands structural measures
The left-wing party Livre opened the budget negotiation period by accusing the Government of limiting the discussion before it started, an approach the party's spokesperson, Isabel Mendes Lopes, called "institutional disrespect." The party insists that a minority government has an even greater obligation to discuss structural measures with parliament during a cost-of-living crisis.
Livre's demands for OE2027 include:
• A National Mobility Pass that would integrate trains, metros, and urban and regional buses across Portugal.
• A substantial increase in family allowance, focused on single-parent households.
• Creation of a public network of nursing homes for the elderly.
• Implementation of a tax on large individual fortunes.
• Reduction of VAT on gas to 6% and expanded social electricity tariffs.
The party also expressed concern that proposed changes to the Urban Leasing Regime will further precarize the rental market and facilitate evictions.
Government draws line on spending
Portugal's Minister of Economy, Manuel Castro Almeida, drew a firm boundary on new spending. "We have a limit," he said in Brussels. "We will not break the principle of sound accounts. We will seek not to go into deficit because of this issue."
Almeida said the Government is providing targeted support to transporters and farmers to prevent price increases from being passed on to supermarket shelves, while ensuring fiscal neutrality on fuel taxation. A slow-moving protest convoy of more than 400 trucks is scheduled for Friday, travelling from Paredes to Coimbra to demand concrete responses on fuel prices.
Public works beyond PRR capped at 220M€
The same minister addressed unfinished projects from the Recovery and Resilience Plan (PRR). The value of works not completed under the programme will not exceed 220 million euros, roughly 1% of the PRR's total value, Castro Almeida assured parliament.
These projects — including schools, health centres, and housing initially planned under the European fund — will be financed through the State Budget, the Portugal 2030 programme, or other funding lines. The minister said the PRR met 100% of its contractual milestones with Brussels, and the final payment request will be submitted by the end of September. He expects the European Commission to release nearly 5 billion euros in December.
Defence spending to push deficit to 1.7% by 2030
The Portuguese Public Finance Council (CFP) projects that Portugal's deficit will worsen significantly because of military spending. The deficit is expected to reach 1% of GDP in 2029 and 1.7% in 2030, driven largely by the acquisition of military equipment under the SAFE programme — the European security action instrument.
Portugal has nearly 70% of its approved 5.8 billion euro allocation already committed, representing 4.033 billion euros. Planned purchases include three new-generation frigates for 3.9 billion euros and 75 armoured vehicles for 133 million euros.
CFP president Nazaré da Costa Cabral said the public debate on defence spending has been insufficient, noting that taxpayers will ultimately bear the cost. More than half the projected budget deterioration in 2029 and 2030 will stem from this investment and rising interest payments.
Madeira negotiates compensation in Lisbon
Miguel Albuquerque, president of the Regional Government of Madeira, will meet with Prime Minister Luís Montenegro in Lisbon on Tuesday to discuss the budget. The Madeiran leader wants to secure funding to compensate for lost cohesion funds — a result of the region's economic growth — and transfers to cover health costs.
Albuquerque called the Regional Finance Law "ridiculous and absurd" for penalizing regions when their income rises, arguing that structural problems related to insularity require financial compensation.
