The Lula administration presented its fiscal adjustment proposal to Congress this week, aiming to cut up to R$ 54 billion in 2027. The package came two weeks after the president’s re-election and under pressure from financial markets.
Fiscal Framework and Tax Cuts
The government intends to expand possibilities for reducing spending during budget execution. Instead of targeting only the minimum fiscal target, officials plan to pursue the center of the target. A new round of linear tax benefit cuts is also planned.
Senate President Davi Alcolumbre plans to vote on the text in the Senate chamber on Thursday afternoon. Debate on the proposal began in the chamber on Wednesday but was postponed at the request of lawmakers.
The bill, known as PLP 299/2026, lowers the growth ceiling of spending set in the fiscal framework from 2.5% to 2% through spending cuts, which will have more possibilities of being made. The text also changes how Net Current Revenue is calculated, which secures the advance of mandatory expenses within the constitutional health floor.
Other measures delay transfers to states and municipalities and allow certain expenses to be carried out outside the fiscal framework under specific conditions.
Revenue and Tax Measures
The project includes measures for long-term adjustment, such as requiring a forecast of expenses for mandatory items like personnel, social security, and wage bonuses for the next five years. It also establishes measures to reduce these expenses.
Relator Eduardo Braga estimates the package will improve public accounts between R$ 43 billion and R$ 54 billion. According to the report, expense containment measures should generate between R$ 12.8 billion and R$ 18.3 billion, while tax compensation limits should raise revenue by the same amount. Reducing tax benefits is projected to add R$ 15 billion, and limiting the Special Tax Incentive Regime for Infrastructure (Reidi) should yield another R$ 4.5 billion.
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Golden Rule Margin and Spending Caps
Unfreezing up to 40% of the financial surplus of funds improves the margin of the “golden rule” by R$ 100 billion. This reduction would lower the need to issue public debt securities. The project sets the framework ceiling at 2% starting in 2027, achieved through spending cuts. The reduction does not serve as a basis for calculating the ceiling in subsequent years, meaning it does not produce a permanent effect.
When there is a threat to meeting the center of the target, the text allows for the possibility of reducing or canceling any primary expenses (except constitutional obligations). The same Law of Fiscal Responsibility prohibits limiting expenses that constitute legal obligations, and this new project does not change that section.
The text also authorizes the Executive to limit funds when bimonthly reports indicate the annual result will fall in the lower interval of the primary result target, which allows, although it does not require, the pursuit of the center of the target. If spending limits exceed the amount needed to reduce the ceiling to 2%, the excess amount is compensated in the individualized ceiling of the Executive Branch in the same year.
The bill doubles the linear cut rate of tax benefits approved by Congress in December 2025. Items with exemption or a zero rate, for example, will pay 10% of the standard rate in 2026 and 20% with the new text. The linear reduction applies to benefits on PIS, Cofins, IRPJ, CSLL, IPI, II, and Social Security contributions. The law does not list CBS or IBS, so the tax benefit cuts do not affect benefits established in the tax reform.
Restrictions on Tax Credits and Oil Revenue
The project gives the federal government the power to restrict the use of tax credits to settle debts with Revenue when there is a risk scenario for the center of the target. Planning Minister Bruno Moretti defended the measure, stating the National Treasury loses significant revenue due to a very broad base of accumulated credits used by taxpayers to offset tax liabilities.
The project bans counting revenue from oil export tax in Net Current Revenue until 2030. This limits expenses in areas like the health floor. Several funds are affected, including the National Security Fund, the National Penitentiary Fund, and the National Anti-Drug Fund. The Securities and Exchange Commission (CVM) is also on the list.
Allowing the government to decouple up to 40% of the financial surplus from specific-purpose sources improves the “golden rule” margin by R$ 100 billion in 2027. This reduces the need for the Treasury to borrow through public debt securities. The bill sets a 120-day deadline for Congress to define limits on supersalaries in the public service. The budget guidelines law must contain a demonstration of the impact of personnel spending reductions resulting from the salary ceiling application.
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The government has a ready project to limit supersalaries. However, a final alignment with President Lula is needed to define the scope of the text and the convenience of aligning with other branches. The project defines where saved resources go: one part directly reduces the framework spending ceiling, creating primary savings. Another part can be used for investment or to finance finalistic activities of the Unified National Public Security System and the National Socioeducational Assistance System.
Limiting Public Servant Salaries and Budget Guidelines
Because indemnity payments and amounts above the ceiling are concentrated in autonomous bodies or other branches, the legal text formally authorizes partial remanagement of the spending limit from those branches directly to the federal Executive Branch limit. The project introduces a new requirement for the Budget Guidelines Law. The fiscal targets annex must contain the estimated annual variation of certain constitutional obligations, including personnel, social security, precatórios, Armed Forces, and wage bonuses/unemployment insurance. The estimate must cover the current year and the four following years, a five-year horizon.
The text adds an article to the Science and Technology Development Fund (FNDCT) allowing the annual budget to allocate part of the fund to pay for scholarships and research in higher education. This could relieve the ordinary budget, which currently funds most scholarships. The text sets maximum values for certain categories of federal spending. It proposes delaying part of payments from the Union to states and municipalities from 2020 to 2030.
The value is reduced to R$ 1 billion per year until 2030. The unpaid balance is transferred only after 2031. The project also limits the Union’s annual flow of payments for server pension regimes between 2027 and 2030 to R$ 3 billion. Exports financing program expenses have a R$ 1 billion annual cap until 2030.
Moretti estimated at a public hearing that spending limits should generate an impact of R$ 11 billion. The benefit of suspending IBS and CBS for Reidi beneficiaries in infrastructure works is limited to the value in the annual Tax Expense Statement, adjusted for inflation. An Executive committee will define which projects benefit, respecting the overall budget limit. The text authorizes additional credit for structural investments in the following year if the primary result exceeds the center of the target and containment measures have been adopted. These values do not enter the framework limit.
Government Budgeting and Spending Measures
This requires an approved law defining remuneration ceiling rules and identifying which indemnity payments may fall outside the constitutional limit. The Law of Budgetary Guidelines must include a statement showing the impact of personnel expense reductions from the remuneration ceiling.
The government possesses a prepared project to limit supersalaries but awaits final alignment with President Lula regarding scope and coordination with other branches. Another portion may go to investment expenses or financing for activities of the Unified System of Public Security and the National Socioeducative Assistance System.
