On 3 July 2026, the Council of the European Union adopted a recommendation outlining economic, social, employment, structural and budgetary policy guidance for Portugal for the 2026-2027 period, based on the 2026 European Semester review. The recommendation calls on Portugal to address challenges in fiscal sustainability, competitiveness, and social resilience, with specific targets and reform deadlines.
On the fiscal front, the Council recommends that Portugal ensure net expenditure growth complies with maximum rates of 5.0% in 2025, 5.1% in 2026, 1.2% in 2027, and 3.3% in 2028. The document notes deviations of 0.2% of GDP in 2025 and a projected 0.2% in 2026, with cumulative deviations of 0.4% (2024-2025) and 0.6% (2024-2026), even after accounting for defence flexibility under the national escape clause activated on 8 July 2025. The recommendation also highlights the need to address the projected rise in public pension expenditure from 12.8% of GDP in 2025 to 15.1% in 2045, urging Portugal to act on the working group's report and develop supplementary pension schemes.
In the area of taxation, the Council recommends streamlining tax expenditures—close to 800, with VAT expenditure alone at 4.3% of GDP in 2024—and reducing outstanding tax arrears, which are among the highest in the EU. To improve the business environment, Portugal should reduce administrative burdens, lengthy licensing processes, and late payments (especially in the Azores and healthcare), and enhance regulatory transparency and ex-post evaluations. On access to finance, the Council recommends developing capital markets, venture capital, and supplementary pension schemes, and improving financial literacy, as only 16% of Portuguese scored 'high' in a 2023 Eurobarometer survey. The recommendation also calls for accelerating implementation of ERDF, JTF, ESF+, and Cohesion Fund programmes, which remain below EU average, with JTF resources due by end-2026. Finally, Portugal should continue improving the efficiency of its justice system.
The recommendation is non-binding but forms part of the EU's economic governance framework. The European Commission will monitor Portugal's progress in the 2027 European Semester cycle. The Council's guidance balances fiscal consolidation with growth-enhancing reforms, impacting taxpayers through potential tax expenditure cuts, pensioners through supplementary scheme development, businesses through reduced administrative burdens, and regional authorities through accelerated EU fund absorption.