As flagship policies of Luís Montenegro’s Government, including reductions in IRS and IRC, are set to be prominent features of this budget, which is scheduled for final overall voting on November 27, as indicated by the proposal from the commission responsible for the State Budget (OE).
Here’s what is already known about the OE2026:
Budget includes measures with an impact of 4.449 billion euros
The Budget already incorporates a set of measures impacting public accounts, totaling 4.449 billion euros, according to the invariable policy framework submitted by the Government to the Budget, Finance, and Public Administration Committee (COFAP).
Among the revenue-affecting measures is a one percentage point reduction in the IRC, impacting 300 million euros, as well as updates to the specific deduction, IRS brackets, and minimum existence, totaling 325 million euros.
On the expenditure side, key items include personnel expenses (1.248 billion euros), with the increase determined in the income agreement (512 million euros) and also salary agreements (262 million euros), along with pensions (1.563 billion euros).
Finance Ministry anticipates surplus this year and next
The Government expects to achieve a budget surplus of 0.3% of the Gross Domestic Product (GDP) this year. Although new forecasts for 2026 are yet to be presented, a positive balance is still anticipated, with the latest projections indicating a surplus of 0.1% in 2026, according to the report submitted to Brussels in April.
The Public Finance Council (CFP) continues to project a budget deficit for next year, now reduced to 0.6% of GDP, as per the released report, while the Bank of Portugal also points to a negative budget balance in 2026.
In the macroeconomic scenario within the State Budget, the Government had forecast growth of 2.1% for this year, revised to 2.4% in the report submitted to Brussels in April, though it remains uncertain if this estimate will be upheld.
Government reduces IRS rates
In July, the parliament approved a reduction in IRS for 2025 with a commitment to another decrease next year, to be included in the State Budget for 2026 (OE2026).
The approved legislation includes a provision, added to the Government’s initial proposal at the initiative of the PSD and CDS-PP parliamentary groups, for the Government to propose to the parliament, “in the context of the State Budget for 2026,” a further reduction of 0.3 percentage points in the marginal rates of the 2nd to 5th brackets.
With this initiative, the executive is bound by the Assembly of the Republic to advance a new proposal to reformulate the IRS table, enshrining a new reduction in the rates of the 2nd to 5th brackets, to apply to income earned by taxpayers throughout 2026.
With an additional reduction of 0.3 percentage points, the second bracket would have a rate of 15.7%, the third of 21.2%, the fourth of 24.1%, and the fifth of 31.1%.
Minimum wage raises to at least 920 euros
The tripartite agreement on wage appreciation and economic growth for 2025-2028, signed last October between the Government, the four business confederations, and the General Union of Workers, revised upwards the trajectory of the national minimum wage, forecasting annual increases of 50 euros to reach 1,020 euros by 2028.
Thus, the document suggests an increase in the national minimum wage from the current 870 euros to 920 euros in 2026.
In the Government program, the executive set a new target for the entire legislative term, aiming for the guaranteed minimum wage to reach 1,100 euros gross per month by 2029.
The Minister of Labor, Solidarity, and Social Security stated this week that the Government “neither opens nor closes the door” to revising the trajectory of the national minimum wage, which stipulates an increase to 920 euros in 2026.
IRC reduction outside of OE context
The reduction in the IRC rate was already approved in parliament in general on September 19, before the start of the budget debate. Despite the discussion taking place separately, the budgetary impact of the measure is included in the OE2026.
After a decrease in IRC this year from 21% to 20%, the rate will be reduced to 19% next year. For 2026, there will also be a decrease in the rate applied to Small and Medium Enterprises (SMEs) and small and medium-capitalization companies on the first 50,000 euros of taxable income from 16% to 15%.
Timeline
The State Budget must be submitted to parliament by October 10, and COFAP already has a proposed timeline for assessing the OE, with the general debate set for October 27 and 28.
The voting on amendments and the document, line by line, will begin on November 20, with the final overall vote scheduled for November 27.
