Portugal’s minority centre-right government has revised its tax cut proposals in an effort to win the support of the opposition Socialists and secure the passage of the 2025 budget. After meeting with Socialist Party leader Pedro Nuno Santos, Prime Minister Luís Montenegro emphasized that the new proposals align more closely with the opposition’s platform.
The changes come as the government needs only the abstention of the Socialist Party to pass the budget. The Socialists had previously criticized the original tax cut proposals for disproportionately benefiting higher earners.
In response, the government has scrapped its initial plan to impose a 15% cap on income tax for all young people and replaced it with a progressive tax exemption scheme. Under the new plan, those under 35 earning up to €28,000 annually will be completely exempt from income tax in their first year of work, with the exemption gradually decreasing to 75% in years two through five, 50% in years six through nine, and 25% from years 10 to 15. This new approach mirrors the progressive tax system the Socialists had been advocating for.
The government estimates this revised plan will cost €645 million in 2025, significantly lower than the €1 billion the original tax cap would have required. Current income tax rates in Portugal range from 13% to 48%, depending on income levels.
Additionally, the government has scaled back its corporate tax cut proposal, reducing the rate by one percentage point to 20% in 2025, rather than the two-point reduction previously planned. This adjustment, along with new tax incentives for companies that raise wages and increase capital, is expected to cost €330 million, down from the initial €500 million projection.
The Socialists will review the new proposals and are expected to present a counter-proposal next week. Prime Minister Montenegro expressed hope that the new adjustments would lead to a budget approval, preventing a collapse of the government and the risk of a third snap election in as many years.
Without a budget deal, the government, which took office in April, could face significant political instability, adding to the ongoing challenges facing Portugal’s economy.
