The Council of the European Union has adopted a recommendation on Portugal's economic, social, employment, structural and budgetary policies, urging the country to correct a net expenditure deviation, reform its pay-as-you-go pension system, streamline tax expenditures, and reduce administrative burdens. The recommendation, dated 22 June 2026 and scheduled for adoption at the Council meeting on 24 June 2026, sets maximum net expenditure growth rates of 5.0% in 2025, 5.1% in 2026, 1.2% in 2027, and 3.3% in 2028.
The recommendation notes that Portugal's net expenditure growth deviated from the recommended path by 0.2% of GDP in 2025, with a cumulative deviation of 0.4% of GDP for 2024-2025, projected to reach 0.6% for 2024-2026. The Council activates the national escape clause for 2025-2028, allowing higher defence spending without endangering fiscal sustainability. On pensions, public expenditure is projected to rise from 12.8% of GDP in 2025 to 15.1% in 2045, prompting the Council to call for reforms to ensure sustainability. Portugal is also urged to streamline its nearly 800 tax expenditures and reduce outstanding tax arrears, which remain among the highest in the EU relative to GDP.
On structural policies, the Council highlights that cohesion policy programme implementation remains below the EU average, urging Portugal to accelerate delivery, particularly for the Just Transition Fund, whose resources must be used by end-2026. Administrative and regulatory burdens, including long licensing procedures and late payments, are identified as major constraints for businesses. The Council recommends developing supplementary pension schemes and improving financial literacy to diversify firm financing beyond bank loans.
Stakeholder impact For the Portuguese government, the recommendation imposes a binding fiscal consolidation path, requiring corrective measures to meet net expenditure ceilings. The pension reform call affects current and future retirees, as adjustments to the pay-as-you-go system may alter benefit levels or retirement ages. Businesses stand to benefit from reduced administrative burdens and streamlined licensing, but may face higher compliance costs from tax expenditure rationalisation. EU fund beneficiaries, particularly those relying on the Just Transition Fund, face pressure to accelerate project implementation to avoid losing resources.
Institutional follow-up The recommendation is part of the European Semester cycle. Portugal is expected to address the Council's guidance in its upcoming Stability Programme and National Reform Programme. The European Commission will monitor compliance and may issue further recommendations or activate the corrective arm of the revised Stability and Growth Pact if deviations persist.