Lisbon targets rising living costs while protecting public finances.
Lisbon, Portugal.
Portuguese Prime Minister Luís Montenegro has unveiled a package of tax reductions, pension supplements and energy-related measures designed to protect households from rising living costs without lowering value-added tax. During a televised national address on September 17, he confirmed that the Council of Ministers had approved measures previously announced in Parliament. The government is allocating approximately €800 million to personal income tax relief and extraordinary pension payments, while maintaining separate support for fuel consumers. Montenegro acknowledged that the current economic pressures could persist, placing fiscal sustainability at the center of his administration’s response.
The income tax initiative reduces rates across six brackets of Portugal’s personal income tax system, known as IRS. Because the system is progressive, the changes may also affect taxpayers in higher brackets, although the government presents the measure primarily as support for middle-class households. The corresponding withholding tables have been published for consultation, but the legislative proposal still requires approval by the Assembly of the Republic. Pensioners will receive extraordinary payments in December, with amounts ranging from €100 to €200 depending on their pension level.
Fuel taxation constitutes another major component. The government will maintain its discount on the tax on petroleum products through the end of the year, representing an estimated €1.3 billion in relief. Montenegro indicated that the reduction could increase from 23 to 25 cents per litre as early as the following week, anticipating further increases in international fuel prices. The measure attempts to contain transportation costs without introducing a general reduction in consumption taxes.
An additional €38 million will support sectors particularly exposed to higher fuel expenses, including freight transport, taxis, agriculture, firefighters and social welfare institutions. The government will also maintain assistance for bottled gas purchases and extend its €20 monthly green rail pass to the urban areas of Lisbon and Porto. The transport initiative offers an alternative to private vehicle use, although its practical benefits will depend on service availability and commuter needs.
The most contested decision concerns VAT. Montenegro rejected proposals to eliminate the existing 6% tax on selected essential food products, an approach advocated by the Socialist Party and Chega. He argued that maintaining the government’s income tax and pension measures was preferable to replacing them with a consumption tax reduction. The alternatives involve different distributional effects, since income tax relief depends on tax liability, while lower food taxes can reach households regardless of their income tax payments.
Portugal’s policy choices also reflect tensions within the wider European economy. Lower fuel prices in neighboring Spain have encouraged some Portuguese motorists to cross the border to refuel, illustrating how national taxation can influence consumer behavior. Montenegro defended his fiscal approach by invoking Portugal’s experience with international financial assistance and warning against measures that could create future budgetary obligations.
The package establishes a combination of targeted relief and continued fiscal restraint, but its effectiveness remains dependent on energy prices, parliamentary approval and household circumstances. Portugal’s underlying challenge is to protect purchasing power while preserving the financial capacity to respond if external economic pressures persist.
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