Portugal’s centre-right government has pushed its 2026 State Budget through parliament, surviving a stormy week of political acrimony and last-minute negotiations. The package passed with the Socialists’ abstention, while both Chega and the left-wing parties voted against.
The sole MPs from the JPP and PAN microparties also voted against the proposal, reversing their stance from the general vote, in which they had abstained.
The Government sees the economy growing 2.3% in 2026 after an expected 2.0% expansion this year, slightly above the Bank of Portugal's 2.2% forecast.
It projects a budget surplus of 0.1% of GDP, down from 0.3% in 2025, even as it expands tax breaks for low-income families and businesses.
The Government also expects the public debt ratio, which peaked at over 134% in 2020, to fall to 87.8% of GDP next year from this year's 90.2%, reaching the lowest rate in a decade.
Prime Minister Luis Montenegro said that, despite many uncertainties at the European and international levels, Portugal was in a stable financial and economic situation to deliver on the budget's "demanding" targets.
The budget introduces tax cuts, wage rises, and higher social spending, but also cements the government’s pledge to maintain fiscal discipline with a small surplus next year.
A modest cut to income tax is one of the flagship measures, trimming rates across several IRS brackets. The minimum wage will rise to €920 a month, keeping low-income earners exempt from income tax. Public-sector workers will receive a 2.15% salary increase.
Pensions rise by over 5%, with the old-age solidarity supplement lifted to €670. The government says the increases are designed to shield the most vulnerable from persistent cost-of-living pressures.
A series of measures targeting the housing shortage includes expanded tax breaks for first-time buyers and incentives to increase affordable rental supply, though critics say the plans fall short of systemic reform.
Debate over the budget was among the most bitter in recent years. Chega accused the government of “timidity” on taxes and crime, while the Socialists claimed responsibility for averting political deadlock by abstaining.
Prime Minister Luís Montenegro hailed the vote as proof his minority government can deliver “stability and credibility”, despite deep parliamentary fractures.
However, upon exiting the chamber, after choosing not to speak in the final debate, Prime Minister Luís Montenegro criticised both PS and Chega, claiming they had “not resisted the temptation to interfere”, leaving certain areas of governance “incoherent”.
He cited, as examples, the rejection of a proposed €1-per-month rise in tuition fees intended to fund social support, and what he called an annual “toll-exemption auction”, which he deemed unfair for Portuguese taxpayers.
Montenegro insisted the budget itself had not been distorted, but that the problem lay in “the disregard shown for the management of the budgetary process”.
Gonçalo Matias, Minister for State Modernisation, closed the debate by arguing that the State Budget “reflects the moment the country is living through, one of economic growth, and social and political stability”.
On the Government’s reform agenda, Matias stated that “reforms must not be rushed. Deep, lasting reforms require vision and a sense of the future”. They should be advanced in periods of growth and social peace, he said, to address “today’s challenges” while also “preparing for tomorrow’s opportunities”.
He highlighted what he described as positive indicators: reduced tax burdens, a projected public-debt fall to 87.8% of GDP in 2026, and international recognition of the country’s financial credibility.
Matias outlined the main tools for growth and wealth distribution: taxation, controversial labour reform, and State reform. On labour legislation, he argued that the package was “neither an ideological exercise nor a capitulation to pressure; it is a firm, realistic, and forward-looking response. Portugal cannot continue to be the country of low wages.”
He emphasised the need to modernise the labour market by tackling low productivity and rigid structures, advocating measures such as extended fixed-term contracts and a simplified time-bank system to make the market “more dynamic and fairer”.
He concluded by reiterating that this “is not a reform of cuts, but a reform for growth”. Blocking these reforms, he said, would be “a waste” and would prevent the country from modernising. He criticised “tactical manoeuvres and artificial signals of social division”, as well as the PS’s “negative coalitions” with Chega. “The PS still wants to govern from the Opposition, despite no longer even being the largest party there”, he added.
PSD parliamentary leader Hugo Soares defended the State Budget as one with “sound accounts serving the right people: the Portuguese”. Responding to criticism from Rui Tavares (Livre) and José Luís Carneiro (PS), he noted: “Tavares said he doesn’t know where the country spent its reserves; Carneiro went further, claiming we squandered the budget surplus.” He asked whether spending on “restoring teachers’ time of service”, “an extraordinary rise in the lowest pensions”, or “the upgrading of 21 public-sector careers” could truly be called “squandering money”.
Soares criticised several parties for selectively backing tax cuts: “The VAT reduction pushed through by Livre, PS and Chega was for luxury renovations. Have some decency.” He then targeted André Ventura directly: “You lied. There isn’t a single tax increase in this Budget. On social media and TikTok you’re not challenged, but in the house of democracy you are.”
He questioned the relevance of abolishing certain motorway tolls, approved by the left and Chega, arguing that “motorways will still be paid for, just not by those who use them, but by everyone else, rich or poor, even those who never drive on them”.
He underlined that “for the first time in many years, and for the second time under the AD (the governing coalition), the Budget includes no tax increases”.
Chega leader André Ventura launched a fierce attack on the Budget, arguing that it continues the “PS’s bad habits” and follows a logic that penalises those who “work, invest, and produce” while benefiting “State clienteles” and those who “do not contribute”.
“It is a Budget addicted to taxing in order to distribute always in the same way, and to the same people,” he said.
Ventura accused the Socialists of hypocrisy for abstaining despite publicly criticising the document, calling the party “an unnecessary and useless crutch for governance and democracy”.
He highlighted Chega’s contributions, such as freezing tuition fees, pushing for toll exemptions, and securing supplements for the GNR and PSP, while insisting Chega “does not engage in negative coalitions, our coalition is with the Portuguese”.
The populist leader highlighted that Chega also influenced the reduction of corporation tax, and accused the Socialists of never genuinely wanting to increase pensions.
He concluded by equating the PSD/CDS coalition to the recent failures of the past Socialist Party governments, appealing directly to his voter base: “The alternative is not on the left, it is Chega.”
On the final morning, several proposals recalled to plenary were approved, such as the Government’s success in securing an extension of VAT exemptions on fertilisers, feed, and agricultural inputs until 2026, with PAN abstaining.
A Socialist Party proposal granting partial toll exemptions on parts of the A6 and A2 crossing the Alentejo, targeted at residents and local businesses, was also approved, despite votes against from the governing parties and IL.
Against the Government’s wishes, MPs approved a €1.6 million increase in funding for the Constitutional Court, the Party-Finance Oversight Body, and the Transparency Entity, via a Chega proposal which split the vote. IL, Livre, and PCP abstained.
The Socialist Party also secured a €1 million transfer from the Ministry of Culture to the Commission for Citizenship and Gender Equality, for victim-support teams and prevention campaigns. PSD and CDS voted against; IL abstained.
Source: LUSA/DN
