Portugal Approves €800 Million Pension Bonus and Income Tax Cuts

Portugal's government has approved a package worth about €800 million ($918 million) that combines a one-off pension supplement with personal income tax cuts, as it seeks to ease cost-of-living pressures on households.

The pension supplement, which accounts for roughly €400 million of the total, will be paid in December to more than two million pensioners whose gross monthly pensions are up to about €1,600. Payments will range from €200 for the lowest pensions to €100 for the highest.

The remaining €400 million covers an annual personal income tax cut for individuals with taxable income of up to €43,090. The reduction will apply retroactively to January and take effect from November. Under Portugal's progressive tax system, higher earners will also benefit from lower rates on income below that threshold, though Prime Minister Luis Montenegro said the measure was aimed primarily at middle-class households.

In a televised address late on Thursday, Montenegro acknowledged households' legitimate concerns, particularly over rising fuel prices, but rejected broader relief measures backed by the opposition, including cutting value-added tax on essential food items to zero from 6%. He argued that such steps would put public finances at risk.

"We must balance social sensitivity with budgetary responsibility ... do not expect me or the government to offer illusions today that would come at a heavy price tomorrow," he said.

Earlier on Thursday, Montenegro said Portugal was on track to record a budget surplus in 2026 for a fourth consecutive year, surpassing the government's earlier forecast of a balanced budget. After a 0.7% surplus in 2025, the centre-right minority government had initially projected a balanced budget this year, citing higher public spending to address the impact of catastrophic storms earlier in the year and to offset inflationary pressure from rising oil prices.

The measures still require parliamentary approval but are expected to secure cross-party backing.