Income Tax may fall further, but there is bad news for retirees and VAT on food will not fall

The Minister of Finance admitted that the government could lower the IR in a larger amount than foreseen in the AD’s electoral program, but did not take it for granted to return to paying an extraordinary additional to retirees this year.

During a regular hearing at the Budget, Finance and Public Administration Committee, Minister Joaquim Miranda Sarmento was confronted by the opposition on the left about what he will do in relation to the two measures, the IRS and the extraordinary supplement for pensioners.

The minister said that 2026 is “the most demanding budget year” of the legislature because of the payments that the State has to make related to the PRR and said that, even before the legislative elections of 2024 and 2025, it was always transparent when assuming this assessment in relation to this year.

“We always said that the IRS reduction was more difficult, just as the extraordinary supplement for retirees was more difficult to execute in 2026,” he said, adding that the impact of storms in Portugal and the fuel crisis with the conflict in Iran “makes the budgetary exercise more demanding”.

However, he assured that the Government remains committed to reducing taxes which applies to the income of workers and pensioners.

“We will do everything we can to continue working on the IRS in the coming years and even exceed what was the Government’s objective [no programa eleitoral]”, he said, in response to the deputy from Livre Patrícia Gonçalves.

In the last electoral program, for the legislative elections of May 18, 2025, the PSD and the CDS-PP (Democratic Alliance) promised to “reduce the IRS by 2,000 million euros” throughout the legislature, 500 million of which in 2025.

Regarding the extraordinary supplement for pensionerswas questioned by the PS deputy Miguel Cabrita on whether the Government will award this bonus again this year, with the government official responding: “I don’t know”.

The minister highlighted that the net income of pensioners increased in 2024 and 2025 through this measure, and in 2026 the Government will see “whether or not it is possible to grant this supplement again”.

“We always put him on probation”recalled Miranda Sarmento.

In the vote on the State Budget proposal for 2026 (OE2026), parliament approved the PSD and CDS-PP initiative for the Government to once again pay this year the extraordinary supplement for lower pensions, depending on the evolution of public accounts, while the opposition’s proposals for a structural increase in pensions were all rejected.

ICMS will not fall on food. Minister explains

Miranda Sarmento says that, in VAT drops on goods whose prices are not regulated, part of the drop is captured by those who produce and distribute.

The Minister of Finance moved away in parliament a fall in VAT on food goodsjustifying that the reduction would be absorbed by the production and distribution chain, and that it would not be felt by consumers.

“It is relatively consensual in the economic literature that VAT drops on goods whose prices are not regulated, such as food, [levam a que] a part of this descent [seja] captured by those who produce and distribute”said Joaquim Miranda Sarmento during a hearing at the Budget, Finance and Public Administration Commission (COFAP).

The question of relief was raised by Chega deputy Eduardo Teixeira, to whom Miranda Sarmento responded that if the parliamentarian thinks that the resources arising from a reduction in consumption tax “should be channeled to this function and not to consumers, that is Chega’s decision”.

The justification presented by Miranda Sarmento in the Assembly of the Republic comes after, on March 27, the Prime Minister stated that “no intervention in terms of VAT is on the table”, neither in fuel nor in the food basket.

At the same hearing, Miranda Sarmento also rejected that the State is gaining tax revenue from VAT in the wake of rising diesel and gasoline prices, highlighting that taxpayers are benefiting from the discount on the tax on petroleum and energy products (ISP).

“In fuels, the State is not making money in VATbecause the price increase results in greater ICMS collection, but this revenue is being deducted from the ISP value. This discount of almost ten cents on diesel and almost five cents on gasoline is exactly the additional VAT from the price increase that is reduced by the ISP”, he said, remembering that this mechanism had also already been applied in 2022 by the government of António Costa (PS).

In relation to the data released by the National Statistics Institute (INE), which shows that the inflation increased to 2,7% in March, said that “they are clear”, by showing that the worsening results from the rise in fuel prices.