Portugal's Tax Breaks Swell to €21 Billion in 2025, an Amount the Court of Auditors Says Escapes Real Scrutiny
The Tribunal de Contas (Court of Auditors) estimates Portugal forwent €21 billion in tax benefits in 2025 — 6.8% of GDP and about 37% more in real terms than in 2020. Reduced VAT rates make up roughly 60%, and the auditors want each break costed, justified and reviewed like direct public spending.
Portugal spent an estimated €21 billion on tax benefits in 2025 — revenue the state chose to forgo rather than collect — a sum equal to 6.8% of gross domestic product and, in real terms, about 37% higher than in 2020. The figure comes from the Tribunal de Contas (Court of Auditors), which used its latest opinion on the General State Account to warn that this vast and growing category of “spending through the tax code” still escapes the scrutiny applied to money the government spends directly.
The point is simple but easily overlooked: a euro of tax that is never charged leaves the same hole in the budget as a euro paid out in subsidies. “This area is particularly important, not only for its direct impact on public finances, but also because it constitutes public support that tends to make the tax system more complex,” said Judge Ana Furtado, presenting the findings. The Court's message is that tax breaks deserve to be measured, justified and reviewed with the same rigour as any line of public expenditure.
Where the money goes
Following a change in how the figure is calculated, reduced and intermediate rates of IVA (value-added tax) now account for roughly 60% of the total — the lower rates applied to food, energy, cultural events and, from this month, construction of moderately priced housing. The rest is spread across IRS and IRC (personal and corporate income tax) reliefs, exemptions and deductions that have accumulated over decades, each defended by the constituency it serves and rarely retired once created.
That accumulation is the crux of the auditors' concern. Because a foregone euro does not appear as a payment, tax expenditure attracts little of the annual budget haggling that surrounds ministries and programmes, yet it quietly widens the gap the Treasury must close elsewhere — a gap the Bank of Portugal has already flagged for the year ahead.
What the auditors want
- Cost every benefit up front: estimate the revenue lost when a tax break is created and again each time it is renewed, so the price is known before the decision is made.
- Close the door to debtors: stop taxpayers who owe the state from claiming benefits, tightening enforcement.
- Prove they work: evaluate whether each relief actually achieves its stated goal rather than simply surviving on inertia.
- Weigh the reduced VAT rates: assess their social and economic effects, not just their fiscal cost, before they are extended.
The Court did credit some progress, singling out the 2024 creation of the Unidade Técnica de Avaliação da Política Fiscal (Technical Unit for Tax Policy Evaluation, or U-TAX), which has already produced two assessment reports. But two reports against €21 billion of annual reliefs is a modest start.
For a government that has spent 2026 handing out targeted tax cuts — on housing, on landlords, on younger workers — the warning lands awkwardly. Every new exemption is popular with those who receive it and invisible in the headline deficit, which is exactly why the auditors argue the tab needs to be added up in plain sight. Whether the recommendation changes behaviour, or simply joins previous editions on the shelf, will show in next year's account.
