Portuguese finance minister warns opposition VAT cuts would create 2027 budget deficit

Opposition proposals and deficit risk

Portuguese Finance Minister Joaquim Miranda Sarmento warned that opposition proposals to slash value-added tax on fuel and essential groceries would push the country into a deficit in 2027. Speaking to news agency Lusa on the sidelines of an informal meeting of EU economic and finance ministers (Ecofin) in Dublin, Miranda Sarmento addressed identical measures backed by the Socialist Party (PS) and Chega. Both parties advocate a temporary reduction of fuel VAT from 23% to 13% alongside a zero-VAT regime on essential food baskets in response to price pressures linked to conflict in the Middle East. Passing such measures requires the combined votes of Chega and PS, which the minister argued would represent a joint choice to create a fiscal imbalance. Without revenue-generating counterpart measures to compensate for the lost tax income, the country risks sliding back into negative territory.

If they want to make a coalition and approve this, what they are telling the country is that they want a deficit in 2027.

Estimated cost of tax cuts

The Finance Ministry estimates the combined annual budgetary cost of the two opposition proposals at approximately 2,000 million euros. The reduction of the fuel VAT rate from 23% to 13% accounts for 1,200 million euros of that sum, while the zero-VAT rate on essential foodstuffs represents 800 million euros. Miranda Sarmento stated that Portugal's public accounts do not contain a fiscal buffer of 2,000 million euros to absorb such losses. He explained that any remaining budgetary margin is far lower than the required amount. Because the expenditure framework for the 2027 financial year is demanding, discretionary tax cuts of this scale would erase the projected margin.

Fiscal surplus and economic projections

The government maintains that Portugal will record a small budgetary surplus in 2026 and continue to maintain a surplus in 2027. However, the projected surplus will remain below the 0.7% of GDP achieved in 2025. Miranda Sarmento described the target for 2026 as a positive balance relatively close to zero, with 2027 remaining positive but narrow. His statements follow remarks from the prime minister on Saturday rejecting the label of father of austerity. At the Dublin meeting, Miranda Sarmento also cautioned that care is needed following interest rate decisions by the European Central Bank.

We continue to say that this year we will have a positive budget balance, relatively close to zero, and, next year, we will continue to have a surplus.

Budget timetable and parliamentary negotiations

The warning arrives less than one month before the executive submits its 2027 State Budget proposal to the Assembly of the Republic. The government plans to negotiate with all opposition parties without picking a preferential partner to ensure the budget passes. Miranda Sarmento stated that the country cannot afford another political crisis or an administration operating on provisional monthly twelfths. Inside the Socialist Party, internal discussions over the VAT cut surfaced, with PS politician José Luís Carneiro comparing party disagreements to internal family disputes. The government intends to present a straightforward budget document, structured similarly to the 2025 and 2026 budgets.