Parliament approves income tax reduction for 2025
The approval paves the way for 2026 State Budget negotiations, anchored by an agreement between the ruling AD coalition and Chega.
On Wednesday, Parliament approved the Government’s proposal to reduce personal income tax (IRS) rates in 2025, alongside a new agreement that locks in an additional cut for 2026.
The 2025 tax package, passed in final vote this week with support from the two parties in the ruling AD coalition (the centre-right PSD and the conservative CDS‑PP), the far right Chega and Iniciativa Liberal (IL), lowers IRS rates from the first to the eighth income brackets.
The Socialist Party (PS) abstained and ecosocialist Livre voted against.
This measure is expected to deliver around €500 million in relief.
The Government plans to update withholding tables with retroactive effect from January, meaning employees and pensioners could see higher net pay as early as August or September.
Details
Although the top 48% bracket remains unchanged, all taxpayers benefit from progressive calculations.
Examples include a drop from 13% to 12.5% in the first bracket, 16.5% to 16% in the second, and 45% to 44.6% in the eighth.
Government simulations estimate net salaries will rise by €2 to €15 per month depending on income level.
Further tax cuts in 2026
In parallel, parliament also approved an amendment proposed by the AD coalition (PSD/CDS) as part of a deal with Chega, committing the Government to further reduce marginal rates in the second to fifth brackets by 0.3 percentage points in 2026.
This extra cut, to be included in the 2026 State Budget, will cost an estimated €111 million, bringing the total tax‑relief package to €611 million.
According to EU Commission simulations cited in the report, the 2026 reduction will mean an additional monthly saving of up to €7.36 for some taxpayers, with an average benefit of around €2.24 per family.
Single workers without children could see about €1.80 per month, while a couple with two children might save roughly €4.
The deal with Chega led the party to withdraw its own more ambitious proposal, which had suggested deeper cuts of up to 0.8–0.9 percentage points in certain brackets.
Instead, Chega backed the AD plan, securing a step‑by‑step approach while confirming support for the 2025 cuts already approved.
Socialist proposals
Finance Minister Joaquim Miranda Sarmento said the Government is ready to publish new withholding tables as soon as the President promulgates the law: “If everything goes according to plan, taxpayers will feel the retroactive effect by late summer.”
Meanwhile, a separate PS proposal to ensure that a tuition‑refund bonus for young graduates can be combined with the IRS Jovem benefit was rejected by PSD, CDS and Chega in committee, but the Socialists have taken it to a final plenary vote.
That debate, scheduled before the summer recess, highlights broader disputes over how best to deliver relief to younger workers.