Portugal's 2025 Budget Surplus Is Set to Blow Past the Government's Own Target When INE Reports on Thursday
Portugal's 2025 budget surplus is expected to reach 0.5 to 1.0 percent of GDP when INE reports on Thursday, far exceeding the government's 0.3 percent target. But the outperformance rests on chronic investment under-execution.
When Portugal's national statistics agency, INE, publishes its official fiscal accounts for 2025 on Thursday, the headline number will almost certainly exceed the government's target of a 0.3 percent surplus. Finance Minister Joaquim Miranda Sarmento has spent weeks hinting that the result will be a "good surprise," and the economists who track these numbers now agree: the surplus is likely to land somewhere between 0.5 and 1.0 percent of GDP.
If confirmed, it would mark the second consecutive year that Portugal has outperformed its own fiscal forecasts. In 2024, the government aimed for a 0.4 percent surplus and delivered 0.7 percent, according to data later confirmed by INE. The pattern is becoming a signature of Miranda Sarmento's tenure: promise restraint, then exceed expectations.
Where the Money Came From
The outperformance is not the result of austerity. It is the product of a familiar combination: stronger-than-expected tax receipts, a buoyant labour market, and the chronic inability of the Portuguese state to spend money it has budgeted for investment.
Data from the Entidade Orcamental, published in January, showed a public administration surplus of 1.3 billion euros in 2025 — roughly 900 million euros more than in 2024. Economists at NECEP-Catolica Lisbon Forecasting Lab point to robust growth in employment and total wages, which pushed up both income tax (IRS) and social security contributions. The economy cooperated: GDP expanded through most of 2025, and the labour market remained tight despite headwinds from the Middle East energy crisis and the aftermath of Storm Kristin.
On the spending side, the government increased current expenditure — particularly on public wages and social transfers, as it faced down a series of public sector strikes. But these increases were more than offset by severe underspending on investment. Capital expenditure, including EU-funded recovery plan projects, fell well below planned levels. The technical support unit of parliament (UTAO) identified this investment under-execution as one of the dominant fiscal patterns of 2025.
What It Means for 2026
The stronger-than-expected starting position gives Lisbon more breathing room in what is shaping up to be a much harder fiscal year. The Bank of Portugal slashed its 2026 growth forecast to 1.8 percent this week and raised the inflation outlook to 2.8 percent. With energy costs elevated by the Iran conflict, storm reconstruction demanding billions, and EU recovery fund spending under pressure, the 2026 budget — built on an assumption of 0.1 percent surplus — may already be out of date.
Pedro Braz Teixeira, director of the Forum for Competitiveness, estimates the favourable deviation in public accounts could amount to roughly one percentage point of GDP, based on the gap between the government's own cash-basis forecast and actual execution. Even after the statistical adjustments required to convert cash-basis figures to the national accounts standard used by Brussels, there is "a very comfortable margin," he said.
The Uncomfortable Pattern
The surplus will be politically useful. But the reason it exists should trouble anyone who cares about Portugal's long-term prospects. A surplus built on investment under-execution means roads not built, hospitals not upgraded, and EU-funded modernisation projects that are falling behind schedule.
Portugal's Recovery and Resilience Plan has already been reshaped once after Storm Kristin forced the reallocation of billions, and the broader Portugal 2030 programme faces its toughest spending deadlines this year. If the pattern of strong surpluses and weak investment continues, Portugal risks meeting its fiscal targets while falling further behind on the structural reforms and infrastructure its economy needs.
The Bank of Portugal, the European Commission, the OECD, and the IMF had all projected the 2025 outcome would be close to balance or a marginal surplus. Every one of them underestimated the result. Thursday's INE publication will confirm what the finance minister already knows: his fiscal record is intact, even if his investment pipeline is not.
