“The Commission notes that Portugal risks significantly exceeding the maximum growth of net expenditures set in the Council’s recommendation for the medium-term plan,” states the European Commission in an opinion on the State Budget for 2026 (OE2026), as part of the European Semester autumn package unveiled today.
The European Commission estimates that, in accumulated terms relative to 2023, Portugal’s net expenditure will increase by 26% in 2026, surpassing the maximum accumulated growth rate of 23.4% recommended by the European Union Council, equating to an accumulated deviation of 0.7% of GDP, which is above the 0.6% ceiling that considers a relief in community budgetary rules.
The European Commission’s autumn forecasts, released last week, project a net expenditure growth of 5.8% for Portugal in 2025, above the maximum growth rate of 5.0% advised by the Council and reflecting a deviation of 0.3% of GDP this year.
For 2026, the net expenditure is estimated to increase by 5.2%, slightly above the maximum growth rate of 5.1% recommended by the Council, equating to a deviation of less than 0.1% of GDP for the next year.
In January this year, the EU Council adopted a recommendation for Portugal’s net expenditure growth not to exceed 5.0% in 2025, 5.1% in 2026, 1.2% in 2027, and 3.3% in 2028.
This corresponds to the maximum accumulated growth rates calculated with reference to 2023, set at 17.4% in 2025, 23.4% in 2026, 24.8% in 2027, and 28.9% in 2028.
Nevertheless, Portugal is among the 16 EU countries that requested and were authorized to activate the safeguard clause under the budget rules to increase defense investments.
Under this approval, Portugal may exceed the recommended maximum growth rates of net expenditures during the 2025-2028 period, provided the deviation does not surpass 1.5% of GDP.
Considering the now-permitted flexibility, the projected accumulated deviation for 2026 (based on current defense spending projections) is 0.7% of GDP, which is above the 0.6% GDP threshold, according to the European Commission.
Despite the warnings, the institution also notes that “the budgetary position for 2026 should be close to balance, thereby contributing to a reduction in public debt as a percentage of GDP.”
This position follows nearly a year after the European Commission approved the first medium-term budget plan with objectives for spending, investments, and reforms under the new EU budgetary rules.
According to the community executive’s estimates, in the State Budget for 2026 (OE2026), the overall impact of discretionary measures on revenue reduces net expenditure and the public administration deficit by 0.3% of GDP in 2026, involving the reduction of personal income tax and corporate tax and the gradual elimination of indirect fiscal incentives for business research and development.
On the expenditure side, the measures include increases in the public sector wage bill and the strengthening of the solidarity supplement for the elderly.
As for the country’s defense spending, it represented 0.8% of GDP in 2021 and 0.9% of GDP in 2024.
Based on the European Commission’s autumn forecasts, this percentage is expected to remain at 0.9% of GDP in 2025 and 2026, marking an anticipated increase of 0.1 percentage points of GDP in 2026 compared to 2021.
The European Semester is an annual exercise of economic policy coordination.
Today’s package was presented on the sidelines of the plenary session of the European Parliament in Strasbourg, France.
The European Commission today stated that the proposed State Budget for 2026 (OE2026) aligns with the European Union’s recommendations and highlighted the country’s efforts to reduce debt.
[Updated at 14:58]
