Budget surplus exceedes projections for 2024
However, the tax burden rose slightly from 35.6% to 35.7% of GDP.
Portugal’s public accounts ended 2024 with a budget surplus of 0.7% of GDP, surpassing initial government projections.
According to data released by the National Statistics Institute (INE) on Wednesday, the surplus amounted to €1.99 billion.
This figure exceeds the 0.4% forecasted by the current government in October and the 0.2% initially estimated by the previous administration under António Costa.
However, it falls short of the 1.2% surplus recorded in 2023.
Finance Minister Joaquim Miranda Sarmento attributed the stronger-than-expected results to economic growth, which reached 1.9% instead of the forecasted 1.5%.
He emphasized that the surplus reflects a robust fiscal position but warned that it “does not carry over into the next year.”
Economic Growth and Fiscal Contributions Drive Surplus
Despite the approval of increased public spending measures - such as an extraordinary pension payment in October and additional income tax cuts - the budget remained in surplus.
This was due to higher-than-expected tax revenues and strong labor market performance, which boosted social security contributions.
Additionally, significant corporate profits, particularly in the banking sector, contributed to fiscal revenue.
Public investment, particularly under the Recovery and Resilience Plan, was executed at a slower pace than expected, further supporting the positive fiscal balance.
Tax Revenues Increase, Public Investment Declines
The country’s tax burden rose slightly from 35.6% to 35.7% of GDP.
Direct taxes, including income tax (IRS) and corporate tax (IRC), grew by 3.5%, with corporate profits helping offset tax cuts. Indirect taxes, such as VAT and fuel tax, increased by 7.2%, outpacing economic growth and generating €876 million more than expected.
Social security contributions saw the largest increase, rising 9.3% in 2024 due to strong job creation and wage growth, surpassing economic growth, which stood at 6.4% in nominal terms.
On the expenditure side, current spending grew by 9.1% but remained €609 million below the government’s October estimate.
Public investment declined compared to 2023, falling more than €2 billion short of government projections, partially due to delays in executing EU-funded projects.
Debt Reduction Continues
Portugal’s public debt ratio fell to 94.9% of GDP, the lowest level since 2009.
Economist João Duque highlighted the importance of continuing this downward trajectory, aiming for a debt ratio near 92% by the end of 2025.
While the budget surplus reflects strong economic performance, Duque noted that the slight increase in the tax burden contradicts government promises to significantly reduce taxation.
He argued that while tax cuts provided relief to households, increased consumer spending led to higher indirect tax revenues, effectively offsetting the reductions.
As the government maintains its forecast of a 0.3% surplus for 2025, further economic growth could potentially improve fiscal outcomes.
However, continued reductions in public debt and effective management of public investment will remain key challenges in the coming years.