Brazil's aggressive primary balance targets likely imply an increased taxation burden to meet goals

The framework aims to achieve primary surplus by 2025

Upcoming Congressional debates on efforts to strengthen the enforcement mechanisms of Brazil’s proposed fiscal framework could bring volatility should there be any strong pushback. Ultimately, the over-reliance on revenue growth to curb public debt increases the chances of additional tax hikes in coming months. Therefore, MNCs must continue to engage in “preemptive lobbying”—demonstrate economic and social value of your industry along with other players to avoid being targeted by the government.


Brazil’s Ministry of Finance presented the main aspects of its proposal for a new fiscal framework, expected to replace the spending cap (which currently limits total growth in federal public spending to the past year’s inflation rate). Within the preliminary details, the spending rule will allow real growth in expenditures equal to 70% of the real growth in revenue in the prior year, limited by lower and upper bounds of 0.6% and 2.5% per year, respectively, and a set of primary balance targets, gradually rising from -0.5% of GDP this year all the way to +1.0% by 2026 (within a fluctuation band of +/-0.25pp of GDP each year). In summary, the proposed rule allows for greater government spending while also aiming to provide greater visibility over Brazil’s public debt.

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While the final proposal is expected to be presented to Congress by April 15 ahead of the 2024 budget guideline discussions, the main guidelines were relatively well received by markets. Amid its pitfalls, the proposal appears to overly rely on revenue growth rather than cuts, similar to some of the previous economic measures announced by the Lula administration. However, the proposal signals a positive step in providing directionality over the consolidation of public debt. The Budget Guidelines Law (PLDO)—a blueprint that will set the main parameters of the 2024 budget, including its zero primary balance target—must, by law, be presented by April 15; therefore, the plan is to officially introduce the framework legislation ahead of that deadline, so that it can be applied immediately while waiting for congressional approval.

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