Portugal's Storm Recovery Squeezes 2026 Budget: What It Means for Your Taxes and Services

The Portugal Ministry of Finance has acknowledged that recent storm damage will tighten the country's already narrow fiscal path in 2026, though officials insist they will protect the budget surplus achieved last year. Finance Minister Joaquim Miranda Sarmento told reporters in Brussels this week that calculating the full cost of Storms Kristin, Leonardo, and Marta will take several more weeks, but the government remains committed to avoiding a return to deficit spending.

Why This Matters

• Budget surplus at risk: Portugal closed 2025 with a surplus slightly above 0.3% of GDP, but reconstruction costs and lost tax revenue now threaten that cushion.

• Fiscal discipline under pressure: The 2026 budget was already designed with a "narrow path" to balance; storm relief spending has made that corridor even tighter.

• No definitive price tag yet: The Finance Ministry has not released an official estimate, though the government has earmarked up to €2.5 billion in emergency support measures for affected municipalities.

Storm Reconstruction Competes With Fiscal Targets

Miranda Sarmento emphasized that the "good budgetary result" Portugal delivered in 2025 provides some breathing room to respond to the crisis without derailing public accounts. However, he warned that 2026 was always going to be a difficult year, even before the storms hit. The government must execute €2.5 billion in loans from the EU Recovery and Resilience Plan (PRR) while also funding reconstruction, compensating businesses and families, and absorbing revenue losses from reduced VAT, personal income tax (IRS), and exports.

"The country had a good fiscal outcome in 2025," he said. "We will have a budget surplus, which will remain a little above 0.3%, and these good fiscal results allow the country to respond more capably when crises like this occur—without jeopardizing the balance of public accounts." But he added: "2026 was already the most difficult fiscal year. The path that was narrow became a bit less narrow with the 2025 result, but the path has become narrow again with the impact of the bad weather."

The minister reiterated the government's position in an interview with state broadcaster RTP, noting that reconstruction will generate "significant budgetary costs on the expenditure side," including direct aid to families, rebuilding public infrastructure such as roads and railways, and compensating for lost tax receipts.

What This Means for Residents

For people living in Portugal, the Finance Ministry's cautious tone signals that while emergency relief is flowing, broader public spending may face constraints in the months ahead. The government has extended the state of calamity to 68 municipalities through February 15, unlocking access to fast-track permits, tax deferrals, and layoff support schemes. However, maintaining fiscal discipline could translate into slower progress on other infrastructure projects or delayed tax reforms originally planned for 2026.

Miranda Sarmento stressed that "there is a great responsibility on the government—and, I hope, on other political actors—that the country must maintain balanced public accounts and continue to reduce public debt." He argued that the credibility Portugal has built under Prime Minister Luís Montenegro's administration in 2024 and 2025 gives the country leverage to manage the crisis, but he also acknowledged that the 2026 budget was constructed with minimal margin for error.

Schools, Infrastructure, and Insurance Under Scrutiny

Beyond the fiscal debate, the storms have exposed vulnerabilities across multiple sectors. A survey by the Public School Mission (MEP), representing 115 school directors (14% of the national total), found that 81 school clusters were affected by the storms. Of those, 26 had to close fully or partially, affecting 157 individual schools and approximately 32,700 students. The most common problems were power outages, communication failures, structural damage, and blocked access roads.

The vast majority of affected schools—93.8%—require repairs, with 35 clusters reporting that work has not yet begun. Around 30 clusters had not undergone significant renovations in more than a decade, raising questions about the state of maintenance before the storms struck. Education Minister Fernando Alexandre acknowledged that two schools in Leiria and one in Marinha Grande remain problematic, though most students have resumed classes either online or in temporary facilities.

Meanwhile, the former president of the National Laboratory of Civil Engineering (LNEC), Carlos Matias Ramos, warned that infrastructure risks do not disappear when floodwaters recede. He told CNN Portugal that roads, bridges, and embankments in saturated or flooded zones remain vulnerable to collapse. "Anyone using infrastructure in an area that was flooded or is in highly saturated soil needs to be very careful," he said. "The risk of finding yourself in a highly unfavorable situation is real." He noted that soil takes time to drain and stabilize, and visible cracks in roadways are a red flag.

The Portugal Infrastructure Ministry has ordered the LNEC to conduct an independent technical assessment of the national road and rail networks, prioritizing bridges, tunnels, viaducts, and geotechnical structures in the hardest-hit areas. The ministry's directive, signed by Infrastructure Minister Miguel Pinto Luz, gives the LNEC 30 working days to present selection criteria for critical points and up to one year to deliver a final audit report. The lab is authorized to hire international consultants if needed.

Insurance Premiums Expected to Rise

Gabriel Bernardino, head of the Portugal Insurance and Pension Funds Supervisory Authority (ASF), told lawmakers that premium increases are "natural" given the growing frequency of extreme weather events. He explained that international reinsurers, who ultimately absorb catastrophic risk, are incorporating climate projections into their pricing models. "If the perception is that risk is increasing, particularly due to global warming and more frequent storms, those who hold the risk—the international reinsurers—will incorporate this into their risk models," he said.

Bernardino urged insurers to maintain financial buffers to avoid passing the full cost increase to policyholders. He also called for the creation of a national integrated system for protection against natural disasters, expanding beyond the earthquake-focused fund that was proposed in 2009–2010 but shelved during the Troika intervention. "We need a catastrophe fund, not just an earthquake fund," he said, adding that he hopes to present a proposal to the government "in due course."

Labour Market Support: Layoff vs. Job Retention

The Portugal Ministry of Labour and Social Security reported that companies affected by the storms are favoring job retention subsidies over the traditional layoff scheme. Labour Minister Maria do Rosário Palma Ramalho said that as of this week, the ministry has received 163 layoff applications covering 1,385 workers, but significantly more requests for the extraordinary job retention incentive, which guarantees 100% of gross salary up to twice the national minimum wage.

Under the layoff simplificado (simplified layoff) scheme, workers receive two-thirds of gross salary (with a floor of one minimum wage) for the first 60 days, with the state covering 80% and employers covering 20%. In contrast, the job retention incentive—administered by the Portugal Employment and Vocational Training Institute (IEFP)—pays the full amount, deducting only social security contributions, for up to three months with possible extension.

Palma Ramalho emphasized that the ministry is processing applications "very quickly" and that the majority of requests so far have been for the retention subsidy. She also noted that the ministry has received 3,662 applications for exceptional family support and 5,213 requests for social security contribution exemptions.

In Parliament, Communist Party (PCP) leader Paulo Raimundo accused the government of misleading the public by initially announcing that storm-affected workers would receive 100% of their salaries under layoff, when in fact that only applies to the separate job retention scheme. Prime Minister Montenegro defended the policy, citing the decree-law text, but the episode has fueled criticism that the government's communication on labour protections has been inconsistent.

Immigration Policy Remains Restrictive Despite Reconstruction Demand

The government's Portugal Transformation, Recovery and Resilience (PTRR) plan, unveiled this week, explicitly rules out opening new immigration channels to meet labour demand for reconstruction. The document states that the Portugal Employment and Vocational Training Institute (IEFP) will monitor workforce needs in coordination with the Mission Structure and employer confederations, but that hiring priority must go to domestic workers and foreign nationals already in Portugal.

Only if domestic supply proves insufficient will the government turn to existing channels: the expanded consular network (reinforced with 50 additional visa experts and mobile teams), the Regulated Labour Migration protocol (which grants fast-track visas when employers commit to housing, training, and language instruction), and IEFP recruitment missions in Portuguese-speaking countries.

The PTRR document warns that "rushed launches of 'new channels' or a return to the manifestation of interest"—the mechanism that allowed entry on tourist visas, abolished by the PSD/CDS coalition—would create "high risks of inadequate or undignified working conditions, housing, and integration." The government frames the reconstruction effort as an opportunity to apply its "regulated and humanist immigration policy," using tools already in place without opening the door to what it calls "open-door solutions."

Parliamentary Debate: Expropriation Powers and Calamity Extension

In Parliament, the government's emergency simplification bill—designed to fast-track reconstruction permits and reduce administrative delays—drew sharp questions from opposition parties about expanded expropriation powers. Chega deputy Bruno Nunes asked whether the bill means that "everything that fell down, instead of helping you rebuild, we can expropriate you." CDS-PP parliamentary leader Paulo Núncio pressed for guarantees that the "urgentíssima" (most urgent) expropriation regime would respect constitutional protections for private property.

Parliamentary Affairs Minister Carlos Abreu Amorim responded that the bill "adds or removes nothing" from the general expropriation framework in the Expropriation Code and that constitutional safeguards remain fully in force. "Respect for property rights, as defined in the Constitution and in law, is absolute," he said. The Liberal Initiative (IL) announced it would vote in favor of the bill but demanded "considerable clarification" on expropriation in the committee stage.

Socialist Party (PS) leader José Luís Carneiro criticized Prime Minister Montenegro for rejecting his proposal to extend the state of calamity and expand it to additional municipalities. "It is a mistake that the government did not accept this proposal," Carneiro said after the quinzenal debate. He also objected to being informed by the prime minister's office—via media announcement—of a scheduled meeting for Wednesday, before his party had confirmed availability. "It is good that people have respect for the dialogue that must exist from an institutional point of view," he said. "I am available for that to happen, but it cannot be with a model of imposition by the government."

Chega leader André Ventura called for the calamity declaration to be extended and for toll exemptions on affected highways through the end of the month. The Livre party proposed the creation of a parliamentary commission to evaluate the state's preparedness before, during, and after the storms, with a six-month mandate to issue recommendations on climate resilience and disaster planning. The PSD has also proposed a similar standing committee.

Energy Regulator Bans Disconnections, Allows Installment Plans

The Portugal Energy Services Regulatory Authority (ERSE) approved a new package of extraordinary measures for electricity and gas customers affected by the storms. Effective from January 28, 2026, through February 13, 2027, the measures include:

• Prohibition of disconnections for non-payment or breach of contract, applying to all customers—residential, small business, industrial, and large consumers.

• Exemption from contracted capacity charges during periods of outage; suppliers must issue credit notes before the next bill.

• Zero consumption estimates for the period of forced outage.

• Installment payment plans for debts accumulated between January 28, 2026, and February 13, 2027, with no interest or fees. Residential and small business customers can request three to six monthly installments, while large consumers negotiate custom plans.

ERSE warned that violations of these measures constitute an administrative offense punishable under the Energy Sector Sanctions Regime.

Death Toll and Damage Assessment

As of February 21, 18 people have died in Portugal as a result of Storms Kristin, Leonardo, and Marta. Hundreds more have been injured, and thousands displaced. The storms caused total or partial destruction of homes and businesses, downed trees and power lines, road and rail closures, and widespread interruptions to water, electricity, and communications. The Centro, Lisbon Metropolitan Area, and Alentejo regions bore the brunt of the damage.

The government's emergency support package is capped at €2.5 billion, covering infrastructure repair, family assistance, and business subsidies. The 68 municipalities initially declared under a state of calamity are no longer subject to that status as of February 15, but they retain access to streamlined permitting and financial aid through the PTRR framework.

Political Fallout and Next Steps

Prime Minister Luís Montenegro has scheduled individual meetings with all parliamentary parties on Wednesday to discuss the PTRR plan. The sessions will take place at the official residence and run throughout the day, starting with the JPP at 10:00 and concluding with Chega at 17:00. The government's plan will be formally approved at a Council of Ministers meeting on Friday.

Opposition parties have criticized the government for delayed response, inadequate communication, and what they describe as attempts to take credit for work done by municipalities. The PS has filed two resolutions calling for an expanded calamity declaration and additional economic relief measures. The Bloco de Esquerda (BE) has recommended that the government charge the Brisa highway concession for the cost of repairing the collapsed section of the A1 motorway.

The PAN raised concerns that the simplification bill could permit tree removal without prior environmental review, warning of a "blank check to destroy natural assets." The PCP cautioned against loosening urban planning controls and questioned whether the bill would allow construction in floodplains.

Miranda Sarmento, speaking in Brussels, reiterated that the government's priority is to maintain fiscal equilibrium while delivering the reconstruction effort. "There is a great responsibility on the government—and, I hope, on other political actors—that the country must maintain balanced public accounts and continue to reduce public debt," he said. The next few months will test whether Portugal can thread that needle.