Portugal faces fiscal pressure as tax burden rises and adjustment warnings issued

Portugal faces significant fiscal challenges as the tax burden rose to 35.3% of GDP in 2025, a 0.3 percentage point increase from the previous year, according to data from the National Institute of Statistics. This rise contradicts the electoral goals of the Democratic Alliance (AD) to gradually reduce the tax load.

Economist Mário Centeno has warned that the state may need to implement 12 billion euros in budgetary adjustments over the next two years if European fiscal targets are not revised. Centeno criticized the current administration's handling of public accounts, noting that while a 0.5% GDP surplus was reported for the first half of 2026, this figure includes Social Security surpluses and masks a “deep deficit” in other areas.

Additionally, the government is managing the impact of planned corporate income tax (IRC) reductions. A scheduled decrease from 20% to 19% is projected to result in a 300 million euro revenue loss for the 2027 State Budget. This reduction is part of a multi-stage plan to lower corporate tax rates through 2028.