Portugal’s government has approved an €800 million package to ease pressure from the rising cost of living, including a one-off pension supplement for more than two million retirees and cuts to personal income tax.
Prime Minister Luis Montenegro acknowledged households’ “legitimate concerns”, particularly over rising fuel prices, but rejected broader relief measures proposed by the opposition, including reducing VAT on essential food products from the current 6% to zero.
Montenegro said such measures could put public finances at risk.
“We must balance social sensitivity with fiscal responsibility,” he said in a televised address to the nation late on Thursday.
Pension payments to be made in December
The pension supplement will cost around €400 million and will be paid in December to more than two million pensioners receiving gross monthly pensions of up to around €1,600.
Payments will range from €200 for those receiving the lowest pensions to €100 for those with the highest pensions within the eligible group.
The measure forms part of the government’s response to cost of living pressures, particularly the impact of higher energy and fuel prices on households.
Income tax cuts to apply retroactively
The government will also cut personal income tax for people with annual taxable incomes of up to €43,090.
The reduction will apply retroactively from January and take effect from November. The measure is expected to cost around €400 million a year.
People with higher incomes may also benefit from lower tax rates because of Portugal’s progressive tax system. However, Montenegro said the measure was aimed “mainly at middle-class households”.
Government expects budget surplus
Earlier on Thursday, Montenegro said Portugal was on course to record a budget surplus in 2026 for a fourth consecutive year.
The minority centre-right government had initially forecast a balanced budget for 2026 after recording a surplus of 0.7% in 2025.
The earlier forecast took into account increased public spending to address the impact of severe storms that hit the country earlier this year, as well as measures to offset inflationary pressures linked to higher oil prices.
The measures still require parliamentary approval but are expected to receive cross-party support.
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