The draft State Budget for 2027 (OE2027) outlines a series of changes that will directly affect the disposable income of Portuguese households, spanning taxation, social benefits, housing costs, and education expenses.
Key measures include an update to personal income tax (IRS) brackets, a rise in the national minimum wage, and the reinforcement of several social benefits. Conversely, tuition fees in public higher education are slated to increase from the next academic year. The draft must still navigate parliamentary approval before presidential promulgation.
IRS: Bracket Update Set to Boost Disposable Income
A central measure is the updating of IRS bracket thresholds. While the tax rates for 2027 remain at the levels proposed by the government in September, the income thresholds for each bracket will be raised.
The proposed IRS table features nine brackets with rates ranging from 12.2% to 48%. The first bracket covers annual taxable income up to €8,666, followed by a 15.2% rate for income between €8,666 and €13,075. The subsequent two brackets, extending to €18,530 and €23,985, carry rates of 20.7% and 23.6%, respectively.
Higher brackets apply rates of 30.6% (up to €30,538), 34.6% (up to €44,762), and 43.1% (up to €48,373). Income between €48,373 and €89,995 faces a 44.6% rate, while the top rate of 48% applies only to the portion of annual taxable income exceeding €89,995.
The upper and lower limits for each bracket have been adjusted by 3.88%, a figure below the 4.5% average wage increase targeted in the Tripartite Agreement on Wage Enhancement and Economic Growth agreed in Social Concertation. Because the brackets are updated by roughly 3.9%, all taxpayers stand to benefit, given the progressive nature of the tax.
The government also plans to update the specific IRS deduction—which shields a portion of workers’ and pensioners’ income from taxation—though the exact amount remains pending the update of the Social Support Index (IAS). The IAS is set annually by ministerial order based on inflation and economic growth data.
Regarding higher earners, the additional solidarity surcharge of 2.5% will apply solely to taxable income above €89,995 per year, while the 5% rate for income exceeding €250,000 remains unchanged.
The proposal to exempt productivity bonuses, performance bonuses, profit-sharing, and balance-sheet gratuities from IRS—up to a limit of 6% of a worker’s annual base salary—also stands, provided the company meets established wage enhancement criteria.
Minimum Wage Rises to €970
Workers on the national minimum wage will see their gross monthly pay increase from €920 to €970 in 2027, a €50 monthly rise. This aligns with the wage enhancement agreement reached in Social Concertation and represents a gross income boost for minimum wage earners; the net impact will vary based on individual tax situations.
In the public administration, the proposal provides for a minimum salary update of 2.3% or €60.52, raising basic monthly pay to €995.51 from the current €934.99.
Pensions to Rise Approximately 3% in 2027
Pensioners will benefit in 2027 from the regular indexation of pensions, calculated based on inflation and Gross Domestic Product (GDP) growth. While the final figure is not yet confirmed, available data points to an increase near 3% for pensions of just over €1,000 per month or less, covering the majority of pensioners. This update is projected to add €824 million to public spending next year.
Prior to that, in December, pensioners receiving up to €1,611.39 monthly will receive an extraordinary supplement paid automatically with their pension: €200 for those receiving up to €537.13; €150 for pensions between €537.13 and €1,074.26; and €100 for pensions between €1,074.26 and the €1,611.39 ceiling. The measure aims to bolster incomes for those on the lowest pensions, though the regular 2027 increase can only be finalized once definitive inflation and growth data are available.
Solidarity Supplement for Older People Increases by €50
Pensioners on the lowest incomes will benefit from an increase in the Solidarity Supplement for Older People (CSI), which is expected to rise from €670 to €720 per month—a €50 increase in the reference amount. This measure targets older people in situations of greater economic vulnerability. The government maintains its goal of raising this reference value to €870 by 2029.
Child Benefit Spending to Rise by €60 Million
Spending on child benefit is also set to increase, driven by indexation to inflation and a forecast rise in beneficiaries. The 2027 budget proposal indicates spending will climb by €59.5 million compared to the projected 2026 outturn. The government attributes this to a roughly 1.1% increase in beneficiaries and higher average payment amounts aligned with projected inflation.
Housing: Landlord Tax Relief, IMT Exemption for Youth, and Public Guarantees
Several changes affect the rental and property markets with distinct impacts for landlords and tenants.
Landlords under the moderate rent tax regime will continue to benefit from a reduced IRS rate of 10% on rental income, rather than the standard 25%. This applies to income earned through December 31, 2029, for both new and existing contracts, but only for rents up to €2,300 per month—the threshold set in September 2025 as “moderate rent.”
For tenants, the maximum IRS deduction for rent payments will rise from €900 to €1,000 in 2027. For taxpayers with lower taxable incomes, the ceiling may reach €1,100, allowing a larger share of permanent housing costs to be offset against tax.
Young people up to age 35 will retain the exemption from Property Transfer Tax (IMT) and stamp duty when purchasing their first home, with updated exemption thresholds. The maximum value covered by the IMT exemption is expected to rise to €338,141.
The government also plans to reinforce the Porta 65 programme, which supports young renters, though specific figures were not provided. The continuation of the public guarantee scheme for first-home purchases is described as likely, although the Finance Minister noted a formal decision was still pending at the time of the budget presentation.
Tuition Fees to Be Unfrozen
One measure adding potential burden for families is the unfreezing of tuition fees in public higher education starting in the 2027/2028 academic year. The current maximum fee for bachelor’s degrees and higher professional technical courses, set at €697, will begin to be updated in line with inflation.
The same inflation-linked update will apply to certain master’s degrees required for professional practice or mandated by professional associations. For other master’s and doctoral programmes, fee updates should reflect the actual cost of training provision. This measure could increase annual expenses for households with children in higher education, particularly when combined with accommodation, transport, and food costs. A similar proposal in the previous year’s budget—which envisioned raising the bachelor’s degree cap to €710—was rejected during the detailed voting stage.
Enhanced Support for Parenthood
The budget allocates higher spending for parental benefits, reflecting anticipated improvements to eligibility conditions. The ongoing debate on extending initial parental leave paid at 100% to 180 days (six months) could influence the final implementation and cost of these measures.
Spending on parental benefits is projected to increase by €349.1 million in 2027, representing 31.7% growth over the 2026 forecast outturn, for a total budgeted amount of €1,452 million. Parliament is in the final stages of reviewing a citizens’ initiative proposing the extension of fully paid initial parental leave to 180 days.
The 2026 State Budget had already factored in the financial impact of a two-month extension. According to Labour Minister Maria do Rosário Palma Ramalho, approximately €230 million was earmarked for this measure based on the government’s proposal, which conditioned the six-month full payment on an equitable sharing of leave between both parents. The citizens’ group behind the initiative argues that full payment for six months should be guaranteed regardless of how leave is split, a solution that would entail higher state costs.
Fuels and Vehicles: No Tax Cuts Announced
For daily drivers, the proposal includes no direct changes to fuel taxes, either increases or decreases. However, the government expects tax revenues from these products to rise by 5.2% due to higher consumption, yielding an additional €186 million.
The budget does not specify the future of the current 23-cent-per-litre fuel tax discount, part of which stems from a mechanism refunding extra VAT revenue generated by rising fuel prices via the petroleum tax. Finance Minister Joaquim Miranda Sarmento stated the government will maintain its policy of responding to price shocks with sector-specific support and a refund of the state’s tax windfall.
The surcharge on diesel vehicles in the Single Circulation Tax (IUC) remains. While rates are unchanged, the payment schedule will shift in 2027 as a transition to a new model: IUC bills up to €500 will be due in October, with larger amounts split into two instalments (the first in July). From 2028, IUC will be payable from April.
The executive is considering “new incentives for the purchase of zero-emission vehicles,” but the timeline, budget envelope, and conditions remain undefined. The grant scheme for electric car purchases, launched in June with a €10 million budget, was exhausted within hours. Environment and Energy Minister Maria da Graça Carvalho indicated no further funding rounds are likely this year.
“Regressar” Programme Extended for Another Year
The government plans to extend the benefits of the Regressar (Return) Programme for an additional year. Currently in force until the end of 2026, the scheme targets former Portuguese tax residents who have lived abroad for at least five years and return to the country. Created in 2019, the programme excludes 50% of employment income and business and professional income from taxation for a period of five years.
