Fiscal reform bills stalled in Congress despite calls for spending cuts

Public finance experts interviewed by Valor argue that Congress could contribute meaningfully to Brazil’s fiscal rebalancing by cutting back on parliamentary earmarks—a move that would represent a concrete step toward spending restraint. This year’s budget earmarks amount to R$50.5 billion, with an additional R$11.2 billion in discretionary executive expenditures added to compensate for unpaid transfers last year, bringing the total to R$61.7 billion.

In response, lawmakers have pledged to move forward with administrative reform, currently under discussion in the Chamber of Deputies and led by Federal Deputy Pedro Paulo (Social Democratic Party, PSD, Rio de Janeiro). However, several legislators caution that the bill is unlikely to emphasize cost-cutting. One influential leader of “Centrão” bloc in Congress told Valor that reform proposals should originate from the executive branch, although contributions from the legislative working group may also emerge.

Experts propose Congress take lead in trimming earmarks

The bill to curb “supersalaries”—by capping indemnity payments that push public servants’ pay above the constitutional ceiling—was passed by the Chamber in 2021 but remains stalled in the Senate. The deadlock stems from attempts to bundle it with the so-called “quinquennial PEC,” a constitutional amendment that restores a bonus for judges and exempts it from the salary cap.

Similarly, lawmakers have kept their distance from another contentious issue: military pension reform, which the government submitted in December 2024. Six months on, the bill remains untouched in the Chamber, awaiting assignment of a rapporteur. The proposal sets a minimum retirement age of 55 for military personnel—currently, there is no age requirement, and service members can retire after 35 years.

In 2023, military pension and retirement benefits posted a R$51.8 billion deficit, compared to R$304.6 billion for Brazil’s general social security system (managed by the National Institute of Social Security, INSS). During the Agenda Brasil – the Brazilian fiscal outlook seminar hosted by Valor, CBN Radio, and O Globo, Chamber President Hugo Motta (Republicans of Paraíba) pledged to review the matter. “We’ll do our part on this issue,” he said.

A government-aligned senator told Valor that many cost-cutting bills are already pending in Congress, but meaningful progress would require reciprocal efforts from the executive. “How can we reduce spending if no one’s willing to put in the effort?” he asked. “Once we show effort here, they need to show it there too. No one wants to give ground because of the power dynamics involved.”

Senate government leader Jaques Wagner (Workers’ Party, PT, of Bahia) noted that lawmakers are also reluctant to budge. “Hugo [Motta] made a good point. Everyone knows adjustment is needed, but no one wants to concede an inch,” he remarked. “Today [Tuesday, 10] I attended the Economic Affairs Committee (CAE) to follow debate on raising the physician salary floor. Everyone talks fiscal responsibility, then backs something that could cost R$40 billion,” he criticized.

Senator Efraim Filho (Paraíba), a leader of Brazil Union and chair of the Joint Budget Committee (CMO), said the government faces an uphill battle in passing its provisional measure offering alternatives to an IOF hike, especially if it only includes tax increases. “The government hasn’t really proposed spending cuts. It’s switching to revenue methods that cause less noise, but that’s not going over well,” he said. “The government has to negotiate with its own base to see what they’re willing to back. You can’t mention Fundeb [Basic education fund] or BPC [continuous cash benefit] without the PT jumping out of their seats.”

On another front, experts argue that cuts to parliamentary earmarks would send a strong message. While they believe the mechanism should be retained, they call for reforms to curb what they see as distortions in the budget process.

Last month, amid the IOF debate, Mr. Motta said congressional leaders were not “concerned” about reducing earmarks. He noted potential support for a cap—if it applies to all parties equally—but warned against “criminalizing” earmarks.

On Monday (9), after attending the Agenda Brasil seminar in São Paulo, Congressman Luciano Zucco (Liberal Party, PL, Rio Grande do Sul), leader of the opposition in the Chamber, also acknowledged the possibility of cutting earmarks, saying “Congress could lead by example.”

Political scientist Beatriz Rey, affiliated with the University of São Paulo (USP) and the Popvox Foundation, said Congress gained political power with the increase in earmarks but is not being held accountable for its share of fiscal responsibility. “The Faria Lima [financial market] crowd needs to start demanding fiscal discipline from Congress,” she said.

“Between 2015 and 2024, earmarks jumped from R$3.9 billion to R$48.3 billion. That’s an absurd increase, disproportionate to Congress’ role in the budget, encroaching on the executive’s prerogatives,” Ms. Rey added. She also called for Judiciary involvement in ending “supersalaries.”

“Congress needs to contribute directly by cutting earmarks,” said Felipe Salto, chief economist at Warren Investimentos. He supports a 50% cut starting in 2026. “Then we could consider a rule that makes earmarks, like other expenditures, subject to available fiscal space,” he suggested.

“We’re on the brink of a fiscal crisis. The situation is dire. Spending is outpacing revenue, partly because earmarks have become a new, virtually untouchable mandatory expense,” said Mr. Salto, former executive director of the Senate’s Independent Fiscal Institution (IFI).