IMF Urges Portugal to Offset Tax Cuts with Spending efficiency & Reform
The International Monetary Fund (IMF) is advising Portugal to proactively address the budgetary impact of recent personal (IRS) and corporate (IRC) tax reductions to maintain fiscal balance,notably looking ahead to 2026. In a statement to Lusa agency,the IMF emphasized the need for offsetting measures to counteract the lasting effect of these tax cuts on Portugal’s budget.
The IMF recommends a three-pronged approach: reducing tax exemptions, improving the efficiency of public spending, and addressing budgetary pressures stemming from Portugal’s aging population. While acknowledging Portugal’s “remarkable” economic performance as the pandemic – including growth exceeding the Eurozone average and a meaningful reduction in public debt (around 45% of GDP) – the IMF stresses the importance of preserving fiscal stability.
Current IMF projections anticipate a 0.2% GDP surplus this year and a balanced budget in 2024,figures slightly more conservative than the Portuguese government’s forecasts. The IMF previously projected a 0.1% surplus for 2026, a view diverging from moast economic institutions predicting a deficit for that year.
Beyond balancing the budget,the IMF suggests reforms to foster sustainable growth. These include eliminating disincentives to business expansion - specifically referencing the progressive corporate income tax – improving access to financing, addressing labor market duality, enhancing educational outcomes, and streamlining bureaucracy.
The IMF also highlighted Portugal’s triumphant implementation of the recovery and resilience plan (PRR), noting a disbursement rate of funds exceeding the EU average, with 40% of the €22.2 billion plan already executed.
This advice comes as the IMF releases a broader report warning of potential debt increases across Europe if current spending priorities continue without policy adjustments. The report suggests a combination of structural reforms (approximately one-third of the necessary effort) and budgetary consolidation (two-thirds) will be crucial to avoid rising interest rates and maintain economic confidence.
