Portugal's Fiscal Council Rates the 2027 Surplus Target Plausible, but Sees Spending Breaking the EU Limit

The Conselho das Finanças Públicas (Public Finance Council, CFP), Portugal's independent fiscal watchdog, published its assessment of the 2027 State Budget proposal on Monday. Its verdict on the headline target: the Finance Ministry's forecast of a surplus of 0.1 percent of GDP in 2027 (about 275 million euros) is "plausible". It is less comfortable with how the surplus is built and with Portugal's EU spending commitments. (Our 8 October report set out the budget's main forecasts.)

A small deficit in the CFP's own numbers

The council's updated projection, which includes the measures the budget spells out, shows a deficit of 0.1 percent of GDP in 2027, not a surplus. It calls the 0.2 point gap immaterial: both point to near balance. The difference would largely close if it counted items the ministry has not specified in enough detail: a crackdown on VAT fraud in the fuel sector, which the government values at 300 million euros, further revenue from selling state property, and the extra income tax collected after this November's withholding cut.

The CFP also thinks the ministry has overestimated its interest bill. The budget expects interest to rise by 1,548 million euros, or 23.2 percent, to 8,217 million. On 31 August the ministry's no-policy-change figures showed a rise of 776 million; the CFP projects growth of 9 percent. The council also sees mainly upside risks to inflation, which would lift VAT receipts. Both could enlarge the surplus.

The central state leans on Social Security

The budget puts the central government deficit at 9.4 billion euros (2.8 percent of GDP), the highest since 2017 apart from the pandemic years. Social Security funds run a surplus of 8.9 billion (2.6 percent) and regional and local government 0.8 billion. In 2025 the Social Security surplus alone covered the central deficit; in 2026 and 2027 it no longer does. The CFP warns that this subsector is especially exposed to the economic cycle. (We covered the 2025 pattern in September.)

EU spending rules: compliance in doubt

Under the EU's fiscal rules, Portugal committed to a ceiling on growth in "net expenditure". The budget claims a cumulative deviation of 0.5 percent of GDP in 2027, inside the 0.6 percent limit, but only after an allowance for higher defence spending. The CFP says that result rests on choices that seem to depart from the European Commission's method, and the budget does not show defence spending will really rise by 0.4 points of GDP compared with 2021. Its own projection has net expenditure growing 7.6 percent in 2026 and 3.5 percent in 2027, leaving cumulative deviations, even after the defence allowance, of 1.1 and 2.0 percent of GDP.

What it means for residents

• Income tax: in November 2026, withholding is cut to 50 percent for salary earners and pensioners resident on the mainland. The CFP says this could mean smaller refunds or more tax bills when 2026 income tax is settled in 2027.
• Pensions and benefits: the budget assumes the extraordinary pension supplement will not be repeated in 2027. The council thinks spending on benefits other than pensions may be underestimated.
• Risks: weaker wage growth would cut tax and contribution revenue. The CFP also lists public-private partnership claims (2,867.2 million euros), possible compensation to Banco Espírito Santo creditors, and state guarantees, including the one behind young buyers' home loans.

What happens next

Parliament's calendar for Proposta de Lei n.º 110/XVII (the budget bill) puts the plenary debate on 27 and 28 October, with the general vote at the close on Wednesday afternoon. With the Socialists abstaining, it is expected to pass. The CFP appears before the budget committee on 5 November; the final overall vote is on 24 November.