What Portugal’s 2025 Budget Surplus and Wage Rise Mean for Expats

Portugal has pulled off a rare fiscal feat: the public accounts closed the first nine months of 2025 firmly in the black while spending on wages and social programmes kept climbing. Residents tracking their taxes, pay cheques and mortgage rates will want to know whether this impressive headline figure can be repeated—and what it could mean for their wallets in an election year.

Quick takeaways at a glance

• 2.1 % surplus in the public administration balance for January-September 2025.

• Third-quarter windfall hit €2.952 billion, equal to 3.8 % of GDP.

• Revenue up 7 %, powered by higher tax receipts and social-security inflows.

• Expenditure up 7.7 %, with public-sector pay rising 8.2 %.

• Government still targets a full-year surplus of at least 0.3 % of GDP.

Surplus builds despite a spending sprint

Portugal’s treasury has rarely enjoyed such room to breathe. Through September, the state collected more cash than it spent, yielding a budget surplus of 2.1 % of national output—a result not seen in two decades outside the pandemic rebound. The achievement looks even bolder when set against a 10.8 % year-on-year leap in third-quarter spending, driven by wage revisions for nurses, teachers and police. Finance Minister Helena Vieira insists the gap will "remain positive" even after the usual end-of-year expense rush, pointing to "prudent revenue assumptions" baked into the 2026 draft budget.

How Portugal stacks up in Europe

Lisbon’s figures sparkle when viewed next to the neighbours. While France wrestles with a -5.4 % deficit and Germany is projected to close 2025 around -3.1 %, Portugal posted 3.8 % of GDP in surplus during summer. Euro-area aggregates are still stuck roughly -2.7 % in the red. Only Cyprus, Denmark and Greece consistently show comparable cushions, according to the latest Eurostat snapshots. Analysts at Moody’s note that “a string of positive balances bolsters Portugal’s return to an A credit rating,” trimming sovereign borrowing costs just as fresh EU funds arrive.

Where the money came from—and went

On the revenue side, stronger employment and corporate profits delivered a 7 % jump in tax proceeds. Social-security contributions moved in lockstep with private-sector wage growth, and a tourist season that shattered records added unexpected VAT to the pot. Outlays, however, were anything but static:

• Employee compensation +8.2 % after new career ladders in health and education.

• Social benefits +7.7 % as pensions were uprated to match inflation.

• Intermediate consumption +7.6 %, reflecting higher energy and IT bills across ministries.

Economists at the Council for Public Finances (CFP) caution that these increases are "structural, not one-offs," meaning they will recur in 2026 unless offset by new savings or revenue sources.

Economists cheer, but flag storm clouds

The surplus is undeniably good news, yet Portuguese economists see at least three risks:

Permanent spending commitments. Pension top-ups and civil-service pay grids could add more than €1 billion per year going forward.

Tax-cut temptation. Parties on both left and right promise trims in IRS and IRC next spring; if enacted without growth, the cushion shrinks fast.

External headwinds. A slowdown in Germany or another spike in euro-zone rates would sap exports and raise refinancing costs.

Ricardo Reis, of the London School of Economics, sums it up: "Portugal has balance-sheet strength, but not yet a growth engine." The IMF shares that view, forecasting GDP expansion of just 1.7 % in 2026 unless investment accelerates.

What to watch in early 2026

The first quarter is when the veneer of a healthy surplus will be tested:

• EU recovery-fund deadlines. Delays could postpone capital inflows worth €1.2 billion.

• Public-sector wage talks. Unions seek an additional 3 % uplift, above the assumptions in the budget bill.

• Corporate-tax reform. The government wants to phase in a 2 pp cut in the headline IRC by 2027; parliament must decide whether the timetable survives election-year politics.

For households, the numbers translate into a mixed picture: a lower risk of abrupt tax hikes, but little relief yet on mortgage costs or housing supply. In other words, the state’s ledger looks tidy—whether it stays that way will depend on the next round of policy choices and on how effectively Portugal converts fiscal space into lasting, broad-based growth.