Portugal could post 0.1% surplus for 2025

Despite warnings that Portugal risks returning to running an annual budget deficit, its Minister of Finances, Joaquim Miranda Sarmento, has two options to ensure that the government makes a surplus.

One by making a greater adjustment to the IRS, and the other by releasing Recovery Resilience Plan funds, with the final bill coming in 2027.

After temporarily increasing the monthly income of families in 2024 by reducing tax at source, the Minister of Finances is preparing to harvest a budget bounty from this measure: a reduction in reimbursements and an increase in debit notes which will fatten IRS revenues for 2025.

These two measures would ensure that the minister of Finances achieves a modest budget surplus for 2025.

Various economic institutions have warned that the government has been increasing expenditure and reducing revenues, risking putting Portugal’s public accounts for the year in the red.

Among them is the Council for Public Finances (CFP) that estimates that this year the budget will bar at 0%. (Neither in debt nor surplus)

Although this is not yet a return to deficits, this would make the public accounts “sensitive” to several factors until there end of the year.

One of the main ones is related to the extraordinary reduction in tax at source on IRS last year when parliament had decided reduce final taxes due annually after tax payers filed their tax returns declaring their  incomes. The government decided on an extraordinary reduction in tax at source which it had held since the beginning of the year, and resulted in many families not discounting IRS for two months. (September and October)

In practice it carried over the final tax bill to this year with reductions in reimbursements to review, and an increase in payable debt notes.

The CFP estimates that this transfer of revenues from one year to be rolled over to another represents around €1.0Bn and includes its forecast for a breakeven balance of 0% for this year.

However, the CFP admits that these amounts might be more since a part still has to be finalised and has to do with the issue of debt notes.

Nevertheless, the evolution of IRS could result in a slight budget surplus this year according to the CFP of an estimated 0.1% of GDP since IRS will have grown by €1.2Bn or 14.4% on last year.