Portugal sees stronger growth in budget bill, trims taxes for families, companies

By Sergio Goncalves

LISBON (Reuters) -Portugal's centre-right minority government unveiled its 2026 budget bill on Thursday, forecasting slightly stronger economic growth and a small surplus for the fourth straight year despite new tax cuts for companies and lower-income households.

In the last year of the implementation of programmes funded by the European Union pandemic recovery plan, investment is expected to grow by 5.5% in 2026, after a 3.6% increase this year, stoking the economy's expansion while exports and private consumption should only grow modestly, the document showed.

The bill that Finance Minister Joaquim Miranda Sarmento submitted to parliament sees the economy growing by 2.3% in 2026, after a predicted expansion of 2.0% this year, slightly above the Bank of Portugal's forecast of 2.2% growth in 2026.

KEEPS REDUCING DEBT

The government projects a budget surplus of 0.1% of gross domestic product, down from 0.3% in 2024.

Portugal's surpluses, helped by solid growth and jobless rates near record lows at around 6%, have been a relatively rare feat among euro zone members. They indicate the country's ambition to keep public finances on a strong footing after a debt crisis in 2011 led to an international bailout and a period of painful austerity.

The government also expects the public debt ratio, which peaked at over 134% in 2020, to fall to 87.8% of GDP in 2026 from this year's 90.2%.

"It's essential at this stage, when the country is growing and has a situation close to full employment, to maintain balanced budgets and continue to reduce public debt by three to four percentage points per year" to protect Portugal from external shocks, Sarmento said.

Following an early national election in May, analysts largely expect parliament to approve the bill next month to avoid the risk of another snap vote that could be unpopular and invite gains by the far right.

TAX RELIEF

As part of an effort to increase the disposable income of low-earning and middle-class families, tax rates on income in the brackets between 8,340 euros ($9,689) and 29,400 euros a year will decrease by 0.3 percentage points.

For the lowest incomes, the rate will fall to 15.7%, and for the highest in the bracket, it will decline to 31.1%.

Under a previously announced longer-term plan to cut the corporate tax rate gradually to 17% by 2028, aiming to improve business competitiveness and boost investment, the standard rate will come down to 19% from 20% next year.

For small and medium-sized businesses with annual income of up to 50,000 euros, the rate will drop to 15% from the current 16%.

Continuing its efforts to curtail the emigration of young people, the government said that those under 36 will be exempt from paying Municipal Property Transfer Tax (IMT) when purchasing homes worth up to 330,500 euros.

($1 = 0.8608 euros)

(Reporting by Sergio Goncalves; writing by Andrei Khalip and Mark Heinrich)