Portugal's government has approved a package of measures that will deliver higher pensions to more than two million retirees and introduce personal income tax reductions, aiming to provide relief for households grappling with rising living costs. Prime Minister Luís Montenegro announced the 800-million-euro (approximately $918 million) plan during a televised address on Thursday evening. He ruled out further universal support measures, such as lowering value-added tax on basic food items.

Montenegro stated that the government must strike a balance between safeguarding household incomes and controlling public expenditure. The policy announcement arrives just ahead of the government's submission of its draft 2027 budget next month, a document that requires opposition support to pass given the minority status of Montenegro's administration. Meanwhile, households are confronting elevated energy prices stemming from the conflict in Iran and widespread inflationary pressures.

The tax adjustment will apply to taxable income brackets of up to 43,090 euros annually. The proposals still require parliamentary review and approval by lawmakers before taking effect. According to data from Eurostat, Portugal remains one of the lower-income economies within Western Europe, with a per-capita gross domestic product of 81% of the European Union average in 2025.