Plan is to maintain the 2027 primary balance target and signal improvement through 2030
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The government’s congressional coalition is expected to introduce a package of fiscal adjustment measures in coordination with the federal government’s economic team. The aim is to achieve an adjustment of between R$70 billion and R$80 billion in 2027 while maintaining the primary balance target for next year. The government also wants to improve the trajectory of public finances through 2030 by raising primary surplus targets.
For 2027, the package seeks to ensure compliance with the midpoint of the fiscal target, corresponding to an actual primary surplus of R$8.5 billion, after accounting for court-ordered payments (precatórios) and the portion of defense spending excluded from the target calculation. Under the official methodology, which excludes these expenditures, the midpoint of the target is 0.5% of GDP, equivalent to R$73.2 billion.
The proposal is also expected to maintain the primary surplus target of 1% of GDP in 2028 and raise the targets from 1.25% to 1.5% in 2029 and from 1.5% to 1.75% in 2030, compared with the figures set out in the Budget Guidelines Bill. The goal is to accelerate fiscal improvement, slow the growth of public debt and enable a sustainable reduction in interest rates.
Discussions on the package began Monday (9) with Senate President Davi Alcolumbre (Brazil Union, UB, of Amapá). The plan is for the first part of the package to be introduced through a supplementary bill (PLP) addressing rural insurance.
On Tuesday, Alcolumbre said Senator Jaques Wagner (Workers’ Party, PT, Bahia), the government’s leader in the Senate, is expected to introduce the bill next week. Negotiations are being led by Wagner, Senator Eduardo Braga (Brazilian Democratic Movement, MDB, Amazonas), Senator Teresa Leitão (PT of Pernambuco), Finance Minister Dario Durigan, and Planning and Budget Minister Bruno Moretti.
One of the proposed measures would authorize the government to pursue the midpoint of the primary balance target, rather than being required to execute the budget only up to the lower limit of the target range. In addition, to ensure compliance with fiscal rules, the bill is expected to expand by 20% the pool of budget expenditures subject to spending freezes, including mandatory expenses that could become eligible for cuts.
The package is also expected to introduce a trigger mechanism to lower the spending growth ceiling established under the fiscal framework if spending freezes become necessary to meet the target. Another measure would make permanent the mechanism that excludes extraordinary oil revenues from Net Current Revenue, the benchmark used to calculate the constitutionally mandated minimum level of health spending.
The government is also considering submitting a proposed constitutional amendment (PEC) to complement the adjustment package. The aim is to establish mechanisms to contain the growth of mandatory spending and gradually improve public accounts over the coming years.
For now, the economic team does not intend to propose a broad relaxation of the constitutional spending earmarks or delink the Continuous Cash Benefit (BPC) from the minimum wage. Another possible adjustment measure is a further reduction in tax incentives. However, it has not yet been decided whether this will be included in the initial package.
*By Murillo Camarotto and Giordanna Neves — Brasília
Source: Valor International