Portugal finance minister warns fuel and food VAT cuts would cause €2B deficit

Fiscal warnings from Dublin

Portuguese Finance Minister Joaquim Miranda Sarmento warned that opposition proposals to cut Value Added Tax on fuels and essential food items would cost 2,000 million euros annually, resulting in a budget deficit for 2027. Speaking at the informal meeting of European Union economic and finance ministers in Dublin, Miranda Sarmento calculated that lowering fuel VAT from 23% to the intermediate 13% rate would cost 1,200 million euros, while introducing zero VAT on a basic food basket would cost 800 million euros. He stated that the projected 2027 fiscal surplus remains modest and cannot absorb such revenue losses without offset measures.

Miranda Sarmento emphasised that approving the measures requires a joint vote from both main opposition parties:

To approve such a proposal, both Chega and PS must vote in favour, so if they want to form a coalition and approve this, what they are telling the country is that they want a deficit in 2027.

Portugal registered a budget surplus of 0.7% of GDP in 2025, expects a positive balance near zero in 2026, and anticipates a reduced surplus for 2027.

Opposition arguments on fiscal margin

The dispute arises less than three weeks before the government presents its 2027 State Budget proposal to the Assembly of the Republic. The Socialist Party and Chega maintain that tax reductions are necessary to protect household purchasing power against persistent inflation. Speaking in Torres Vedras, PS Secretary-General José Luís Carneiro contended that public finances have sufficient leeway generated by inflation receipts and fuel taxes collected during 2024 and 2025. Carneiro also noted that the government spent nearly 400 million euros to acquire a stake in energy grid operator REN, while leaving two million low-income workers without relief because they do not earn enough to pay personal income tax.

Carneiro defended the financial viability of the socialist measures:

The proposals we present fit within the budget leeway that the Government created through increased revenue, both from VAT and as a result of the taxes it applied to fuel in 2024 and 2025.

Carneiro urged Prime Minister Luís Montenegro, who stated on Saturday that he refused to become the father of austerity, to remember his past statements demanding tax cuts when leading the opposition against former Prime Minister António Costa.

Chega and parliamentary reactions

In Funchal, Chega leader André Ventura accused the government of political hypocrisy, recalling that the Social Democratic Party supported fuel tax cuts when the war in Ukraine began in 2022. Ventura argued that lowering fuel VAT to 13% represents the most direct mechanism to lower pump prices, with the bill structured to take effect after the passage of the next State Budget. He stated that this statutory change remains fully compatible with temporary government discounts.

Ventura directly challenged the prime minister's shift in stance:

What I do not understand is how Montenegro in 2022 said fuel VAT should be lowered, and the Montenegro of 2026 thinks proposing a fuel reduction is irresponsible.

Ventura also criticised the PS for declaring on 17 September that socialist lawmakers would vote against Chega's draft. Meanwhile, Iniciativa Liberal deputy Mariana Leitão pointed to an IL measure approved in May 2026, which she stated would reduce fuel costs by 30 cents per litre and deliver 700 million euros in household savings.

Parliamentary schedule and budget negotiations

The Assembly of the Republic will debate and vote on Chega's fuel tax bill and a separate PS resolution on 24 September 2026. The PS initiative represents the party's third attempt to pass its cost-of-living mitigation package. Miranda Sarmento indicated that the government will negotiate with all opposition parties rather than choosing a single partner, seeking to prevent a political crisis or a return to provisional monthly twelfths budgeting. The government must deliver its 2027 draft budget to parliament in early October 2026.