Portugal approves $918 million pension bonus, tax cuts package

By Sergio Goncalves

LISBON, Sept 18 (Reuters) - Portugal's government has approved a one-off pension supplement for more than two million pensioners and personal income tax cuts, retroactive to January, to help ease living-cost pressures in a package costing €800 million ($918 million).

Prime Minister Luis Montenegro acknowledged households' "legitimate concerns", particularly over rising fuel prices, but rejected broader opposition-backed relief measures, including cutting VAT on essential food items to zero from 6%, saying such measures 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 in a televised address to the nation late on Thursday.

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

The government will also cut personal income tax for individuals with annual taxable income of up to €43,090, with the reduction applied retroactively to January and taking effect from November. The measure will cost about €400 million a year.

Although higher earners will also benefit from lower rates on income below that threshold under Portugal's progressive tax system, Montenegro said the measure was aimed "primarily at middle-class households".

Earlier on Thursday, he said Portugal was on track to post a budget surplus in 2026 for a fourth consecutive year, beating the government's earlier forecast of a balanced budget.

After a 0.7% surplus in 2025, the centre-right minority government had initially forecast a balanced budget this year, citing higher public spending to address the impact of catastrophic storms earlier this year and to offset the inflationary pressure from rising oil prices.

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

($1 = 0.8713 euros)

(Reporting by Sergio Goncalves. Editing by Mark Potter)