Brazil’s Senate has approved the main text of a government-backed fiscal adjustment bill, PLP 299/2026, by 45 votes to 31, advancing a package intended to help contain spending and increase revenue for the 2027 budget.
The vote on Thursday, 12 November, was an important step for President Luiz Inácio Lula da Silva’s administration, but it did not complete the legislation. Senators still need to decide four separately selected points that could change the proposal. Those votes are expected on Tuesday 17 November, after which the bill is due to go to the Chamber of Deputies.
The proposed changes are not yet law. Their final form will depend on the remaining parliamentary process.
What the bill would change
The government estimates that the measures in the approved text could improve the primary balance by between R$45.1 billion and R$56.1 billion in 2027. The primary balance is the difference between government revenue and spending before interest payments on public debt. The figure is a projection, not a sum already saved or collected.
One element would reduce a ceiling on real growth in federal expenditure from 2.5 per cent to 2 per cent in certain years. The lower limit would apply from 2027 in years when the government adopts fiscal restraint and additional spending blocks. Real growth means growth after inflation has been taken into account.
The proposed reduction would apply to the year in which it was triggered and would not change the calculation of spending limits for subsequent years. The bill also envisages giving the government greater flexibility to block budgeted expenditure temporarily in pursuit of the centre of its fiscal target, even when the projected result is already within the permitted range.
For 2027, that target is a primary surplus of 0.5 per cent of gross domestic product, with a tolerance range of 0.25 to 0.75 per cent. Under the current rules, a block is required when there is a risk of falling below the lower end of the range. The proposed additional power would be aimed at the central target.
Tax relief and public services
The package would reduce a range of tax benefits, including exemptions, credits and special tax regimes. It would also allow further restrictions on the use of tax credits to offset tax liabilities. Businesses can use eligible credits to reduce amounts they owe. Business organisations have argued that the proposal does not make clear whether withheld credits would be returned or when.
Not every concession would be treated alike. Incentives for the information technology and semiconductor industries would be excluded from the reduction, as would relief on vehicle purchases for people with disabilities or autism. The precise treatment of individual benefits will depend on the final legislation.
Another proposal would exclude revenue from the oil export tax from the base used to calculate certain spending obligations, including the federal health spending floor, until 2030. That would affect the calculation of the minimum allocation rather than, by itself, establish the final amount the government spends on healthcare.
The plan would also postpone part of the federal transfers made to states and municipalities under the Kandir arrangements, which compensate for export tax exemptions. The annual payment would fall from R$4 billion to R$1 billion between 2027 and 2030. The accumulated R$12 billion difference would be compensated by 2037.
A divided debate
Supporters argue the package will make the budget more manageable and help the government meet its fiscal commitments. The bill was introduced by Senator Jaques Wagner at the executive’s request, and the main text approved by the Senate was a substitute prepared by rapporteur Eduardo Braga.
Opposition senators sought more time to examine the measures and questioned the speed of their passage. A separate urgency motion passed by 40 votes to 38 before the 45–31 vote on the bill’s main text. Business organisations have also raised concerns about the proposed limits on tax-credit offsets.
The package comes after Lula’s re-election and amid concern about the trajectory of Brazil’s public debt. Some analysts have argued that the measures may not do enough to address the growth of mandatory spending, while members of the governing party have also voiced concern about spending restraint. Those are assessments of the proposal, not evidence of its eventual effect.
The bill contains provisions that go beyond the 2027 adjustment. It would allow up to R$10.5 billion of spending on a road-diesel subsidy to be excluded from the assessment of the 2026 fiscal target. The expenditure would still exist; the proposal changes how it is counted against that target.
For now, the next decision rests with senators on the four outstanding points. Even if the upper house finishes its work as expected, the Chamber of Deputies must still consider the proposal before it can advance further.
