Brussels warns Portugal about net spending above recommended levels

The European Commission warned today that Portugal “runs the risk of significantly exceeding” the maximum ceiling for net expenditures set under the medium-term plan, although it speaks of a budgetary situation “close to balance” in 2026.
“The Commission observes that Portugal runs the risk of significantly exceeding the maximum growth of net expenditures foreseen in the Council’s recommendation that approves the medium-term plan,” indicates the community executive in an opinion on the State Budget for 2026 (OE2026), within the scope of the autumn package of the European Semester released today.
According to the European Commission, in cumulative terms, that is, compared to the base year of 2023, it is estimated that Portugal’s net expenditure will increase by 26% in 2026, a figure higher than the maximum cumulative growth rate of 23.4% recommended by the Council of the European Union, and equivalent to a cumulative deviation of 0.7% of Gross Domestic Product (GDP), also above the ceiling of 0.6% that takes into account a relief in the community budgetary rules.
According to the autumn forecasts of the European Commission, released last week, it is expected that, in 2025, Portugal’s net expenditure will increase by 5.8%, a figure higher than the maximum growth rate of 5.0% recommended by the Council and corresponding to a deviation of 0.3% of GDP this year.
For 2026, it is estimated that net expenditure will increase by 5.2%, above the maximum growth rate of 5.1% recommended by the Council, equivalent to a deviation of less than 0.1% of GDP next year.
In January of this year, the EU Council adopted a recommendation for the growth of Portuguese net expenditure not to exceed 5.0% in 2025, 5.1% in 2026, 1.2% in 2027, and 3.3% in 2028.
This corresponds to the maximum cumulative growth rates calculated with reference to 2023, of 17.4% in 2025, 23.4% in 2026, 24.8% in 2027, and 28.9% in 2028.
Still, Portugal is one of the 16 EU countries that requested and was authorized to activate the safeguard clause under the budgetary rules to be able to invest more in defense.
This approval allows Portugal, during the period of 2025-2028, to deviate and exceed the recommended maximum growth rates of net expenditure, as long as the deviation does not exceed 1.5% of GDP.
Taking into account the flexibility now allowed, the projected cumulative deviation for 2026 (based on current projections for defense expenditure) is 0.7% of GDP, above the threshold of 0.6% of GDP, according to the European Commission.
Despite the warnings, the institution also emphasizes that “the budgetary position for 2026 should be close to balance, thus contributing to a reduction in public debt as a percentage of GDP.”
The position comes after, about a year ago, the European Commission approved the first medium-term budget plan with objectives for expenditures and investments and reforms under the new EU budgetary rules.
According to estimates from the community executive, in the State Budget for 2026 (OE2026), the overall impact of discretionary measures on revenue reduces net expenditure and the deficit of public administrations by 0.3% of GDP in 2026, concerning the reduction of IRS and IRC and the gradual elimination of the indirect system of tax incentives for business research and development.
On the expenditure side, the measures include increases in the salary mass of the public function and the strengthening of the solidarity supplement for the elderly.
Regarding the country’s expenditure in the defense area, it represented 0.8% of GDP in 2021 and 0.9% of GDP in 2024.
According to the autumn forecasts of the European Commission, it is expected that this percentage will remain at 0.9% of GDP in 2025 and 2026, which corresponds to a projected increase of 0.1 percentage points of GDP in 2026 compared to 2021.
The European Semester is an annual exercise in coordinating economic policies.
The package today was presented on the sidelines of the plenary session of the European Parliament in the French city of Strasbourg.