Chronicle of a fiasco foretold

BRAZIL ECONOMICS - Report 28 Sep 2026 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The government’s new budget forecasts indicate that the fiscal framework rules should be met in 2026, with the help of a spending freeze. However, in recent years, this has only been possible because the government lowered the targets, expanded deductions and resorted to parafiscal measures. On the revenue side, the shortfall in the new dividend taxation exposes the risks of an adjustment based on tax increases. On the expenditure side, the room created by the revision of social-security benefit projections was absorbed by new spending. Although the framework is on track to be met once again, the results of recent years are disastrous, as shown by the persistent primary deficit and rising debt. This reveals the weakness of Brazil’s fiscal rules and reinforces the need for reforms to the rules governing the evolution of mandatory spending.

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