Lisbon – The Portuguese government forecast a loss of €401 million in personal income tax (IRS) revenue by 2027, a figure that appears before the implementation of any additional tax cuts, according to a report by ECO.
Fiscal outlook and budget implications
The projection, released by the Ministry of Finance, reflects the cumulative effect of an ageing population, slower wage growth and the gradual erosion of the tax base. Finance Minister João Leão indicated that the shortfall emerges despite a modest recovery in overall tax collections during 2023 and 2024.
Analysts note that the €401 million gap represents roughly 0.3% of Portugal’s projected gross domestic product for 2027 and will tighten an already narrow fiscal space. The government is committed to meeting the European Union’s fiscal rules, which require a structural deficit below 0.5% of GDP, and the anticipated loss could push the deficit closer to the ceiling.
"The Treasury already anticipates a €401 million shortfall in IRS revenue by 2027, before any new tax reductions are applied," the report said.
Political context and upcoming reforms
Prime Minister António Costa’s administration has pledged a series of tax relief measures aimed at boosting disposable income and stimulating consumption. The planned cuts include a reduction in the marginal rate for middle‑income earners and an increase in the non‑taxable threshold, measures slated for discussion in the 2025 budget cycle.
Opposition parties, led by the Social Democratic Party (PSD), have warned that the combination of a projected revenue loss and upcoming cuts could undermine the state’s ability to fund public services, particularly health and education. Economic think‑tanks echoed the concern, urging the government to consider either postponing the reforms or identifying alternative revenue streams, such as a modest increase in value‑added tax (VAT) or new environmental levies.
Within the cabinet, the Finance Ministry is reportedly weighing a range of options, from tightening public‑sector spending to accelerating the privatization of state‑owned assets. Sources close to the Treasury said that any decision will need to balance fiscal prudence with the political goal of delivering tax relief to voters ahead of the next parliamentary elections.
Despite the projected shortfall, the government maintains that its broader fiscal strategy remains on track. Leão reiterated that the Treasury’s medium‑term plan, which targets a primary surplus by 2026, will still be achievable if the projected loss is offset by improved compliance and modest growth in other tax categories.
The forecast has become Portugal’s top domestic story, reflecting widespread public interest in how the state will navigate competing pressures of fiscal responsibility, social spending, and electoral promises. As the 2027 horizon approaches, the Treasury’s ability to close the €401 million gap will be a key test of the administration’s fiscal credibility.
