The International Monetary Fund (IMF) argues that Portugal should choose to reduce tax exemptions and improve the efficiency of public spending to maintain budget balance in 2026, due to the impact of the IRS and IRC cuts.
“Maintaining fiscal momentum beyond 2026 will require measures to offset recent cuts in personal income taxes [IRS] and companies [IRC]which will have a lasting effect on the budgetary balance”, indicates the IMF in a response sent to the Lusa agency.
According to the organization, “These measures should include reducing tax exemptions, improving the efficiency of public spending and responding to budgetary pressures arising from an aging population.”.
In a report released in October, the IMF anticipated a surplus of 0.2% of Gross Domestic Product (GDP) this year and a zero balance next year, more pessimistic than the Government.
In previous forecasts, the IMF even predicted a budget surplus of 0.1% in 2026.
However, it is an exception, as most institutions that follow the Portuguese economy point to a deficit next year.
In projections released last month, the IMF also calculated that the Portuguese economy will grow 1.9% this year and 2.1% next year, more pessimistic than the Governmentwhich in the State Budget points to growth of 2% and 2.3%.
In statements to Lusa, the IMF highlights that “Portugal’s economic performance since the pandemic has been remarkable”.
“The country achieved strong growth – above the eurozone average – and, at the same time, an impressive reduction in public debt by around 45% of GDP. Our baseline projection points to the continuation of these trends, including the maintenance of a small budget surplus next year.”he says.
According to the institution, to “preserve budgetary soundness and promote sustainable growth”, Portugal must “move forward with reforms to eliminate disincentives to business expansion – for example, the progressive corporate income tax [IRC] -, improve access to financing, resolve the duality of the labor market, continue to progress in education results and simplify bureaucracy”.
Regarding the impact of the Recovery and Resilience Plan (PRR) in Portugal, the IMF speaks of an “important role” for public investment.
“So far, Portugal has achieved a disbursement rate of funds above the EU average, and the implementation of PRR subsidies is well within reach”he concludes, at a time when the country is recording 40% execution, in a plan budgeted at 22.2 billion euros.
The position comes in the week in which the IMF releases a report on “How can Europe pay for what it cannot afford?”in which he warns the European Union that, given current community priorities, and “without immediate political action, public debt levels could more than double, on average, in European countries over the next 15 years”.
“This could lead to a rise in interest rates, further slowing the already weak economic growth and shaking market confidence”, he adds, pointing out that, therefore, “both structural reforms and budgetary consolidation will be necessary to achieve the difficult adjustment of policies, with a third of this effort resulting from a set of moderate reforms and two thirds coming from consolidation”.
Ana Matos Neves/Lusa