The Portuguese government has unveiled its draft State Budget for 2027 (OE2027), a package that touches nearly every aspect of household finances, from income taxes and wages to pensions, housing, and education. The proposal, which still requires parliamentary approval and presidential promulgation, aims to lift disposable incomes while addressing long-standing pressures such as housing affordability.
Income tax: bracket thresholds rise
A central element is the annual update of the IRS (personal income tax) brackets. The government has confirmed that the nine-bracket structure, with rates ranging from 12.2% to 48%, remains unchanged. However, the income thresholds for each bracket will be raised by 3.88%, a figure slightly below the 4.5% average wage increase target set in the Tripartite Agreement on Wage Enhancement and Economic Growth. This adjustment means that, for a given nominal income, taxpayers will see a larger portion of their earnings taxed at lower rates, effectively boosting net pay.
The first bracket now covers annual taxable income up to €8,666, taxed at 12.2%. The next bracket, up to €13,075, is taxed at 15.2%, followed by rates of 20.7% (up to €18,530) and 23.6% (up to €23,985). Higher earners face rates of 30.6% (up to €30,538), 34.6% (up to €44,762), 43.1% (up to €48,373), and 44.6% (up to €89,995). The top rate of 48% applies only to income above €89,995.
In addition, the government plans to update the specific IRS deduction, which excludes a portion of workers' and pensioners' income from taxation. The exact amount will depend on the annual update of the Social Support Index (IAS), typically set in December based on inflation and economic growth.
For high earners, the additional solidarity rate of 2.5% will now apply only to taxable income above €89,995, while the 5% rate for income over €250,000 remains. The proposal also retains the exemption from IRS for productivity bonuses, performance bonuses, profit-sharing, and balance-sheet gratuities, up to 6% of a worker's annual basic pay, provided the employer meets wage enhancement criteria.
Minimum wage and public sector pay
The national minimum wage is set to rise from €920 to €970 per month in 2027, an increase of €50. This aligns with the Social Concertation agreement and will directly benefit the lowest-paid workers. In the public administration, the minimum basic salary will increase by 2.3% (€60.52), bringing it to €995.51 per month, up from the current €934.99.
Pensions and social benefits
Pensioners will see their pensions indexed to inflation and GDP growth, with an estimated increase of around 3% for pensions up to €1,000 per month, covering the majority of recipients. This will add €824 million to public spending in 2027. Before that, in December 2026, pensioners with pensions up to €1,611.39 will receive an extraordinary supplement: €200 for those receiving up to €537.13, €150 for pensions between €537.13 and €1,074.26, and €100 for pensions up to the ceiling.
The Solidarity Supplement for Older People (CSI) will increase from €670 to €720 per month, a €50 rise, with the government maintaining its goal of reaching €870 by 2029. Child benefit spending is also set to rise by €59.5 million, driven by an expected 1.1% increase in beneficiaries and higher average payments linked to inflation.
Housing: measures for renters and young buyers
Housing remains a critical issue, as protests have spread from Lisbon to Porto. The budget includes several measures: a tax benefit for landlords who offer long-term rentals, an exemption from the Municipal Property Transfer Tax (IMT) for young people buying their first home, and public guarantees to help young buyers secure mortgages. These steps aim to ease the burden on tenants and first-time buyers, though critics argue they may not be enough to counter rising rents and property prices.
Tuition fees to rise
In education, the budget signals a reversal of the freeze on higher education tuition fees. Fees are expected to increase starting from the next academic year, a move that will add to the costs faced by students and families. The government argues that the increase is necessary to fund improvements in the sector, but student groups have already voiced opposition.
The budget must now navigate the parliamentary process, where the Socialist Party (PS) and other parties will scrutinise the measures. The final shape of the budget could change, but the direction is clear: a modest boost to incomes, tempered by rising costs in housing and education. As housing protests continue, the government's ability to deliver on these promises will be closely watched.
