Portugal should return to a public deficit situation next year, equivalent to 0.3% of the Gross Domestic Product (GDP), but the European Commissioner for the Economy signaled that this forecast is not a fatality or a given since this final value for the budget balance still incorporates the very high fiscal expenditure, which arises from the support measures for families and companies at the level of the ISP and the carbon tax, which continue to keep fuel prices at lower values than would be normal without this subsidy. still in force.
Valdis Dombrovskis, the commissioner, said, at the press conference on the new economic forecasts, in Brussels, that he is waiting for the government to present a plan to end the aforementioned support in terms of the Tax on Petroleum and Energy Products (ISP) and the carbon tax.
For years, the EC has been insisting on Portugal and other countries to end this subsidization, which, it argues, distorts the market and ends up being an incentive to consume gasoline and diesel (polluting).
“We are asking the Portuguese government to remove the energy support measures that have been applied since the energy crisis, following the start of the war in Ukraine, but until the conclusion of these Commission forecasts, the Portuguese government had not yet announced the elimination of this measure and, therefore, it continues to be taken into account in our forecasts”, explained Dombrovskis.
Last week, the Minister of Finance, Joaquim Miranda Sarmento, said, on the sidelines of a meeting of the European Council on Finance, in Brussels, that the European Commission “has not imposed any date” regarding the end of support for fuels and that this weaning plan, when the government moves forward, “will be gradual”.
In the new forecasts, the EC expects a zero budget balance in Portugal this year, which will increase to a deficit of 0.3% next year.
“Our projection differs from the Government’s forecast, which is a surplus of 0.3% this year and 0.1% of GDP next year”, noted the European Commissioner.
However, the complete end of fuel support would give a huge boost to public accounts, as it could represent an annual increase in revenue of more than 1.1 billion euros.
According to the Public Finance Council’s (CFP) analysis of OE 2026, the increase in tax revenue resulting from the extinction of the ISP discount, the update of the carbon tax and the corresponding higher VAT collection in 2026, “would result in an additional revenue gain of 1,132 million euros (0.4% of GDP), if the reversal of these measures proceeds at the beginning of next year and in full”.
According to CFP accounts, released less than a month ago, the direct annual impact of the increase in revenue expected from the full update of ISP rates could amount to 873 million euros.
The update of the carbon tax in 2026 would provide an additional collection of 47 million euros through fuel consumption and “in addition to these two components, which constitute an integral part of the price of petroleum products, there would also be additional VAT revenue, worth 212 million euros”, explained the same Finance Council.
In other words, all things considered, and only in this way (increase of 0.4% of GDP in revenue), The EC’s public deficit of 0.3% would disappear and the country would be left with a surplus of 0.1%, a value that, incidentally, is exactly equal to Miranda Sarmento’s target for 2026.
It is recalled that discounts on the ISP for gasoline and diesel were introduced in 2022 and 2023, following the energy crisis triggered by the war in Ukraine and the abnormally high inflation that the war generated, as well as the sharp increase in food prices.
At the press conference, Commissioner Dombrovskis also explained that his less positive forecasts for Portuguese Finance (zero balance this year and deficit next year) still have to do with “our more prudent estimates on the growth of expenditure, namely current expenditure”.
The EC official took the opportunity to de-dramatize these new forecasts, recalling that “it is worth highlighting that the Commission’s forecast for next year is, nevertheless, more optimistic than the forecast of the Public Finance Council, which predicts a deficit of 0.6% of GDP, and also of the Bank of Portugal, which points to a deficit of 1.3%”.