Brazil’s government of President Luiz Inácio Lula da Silva is reported to be preparing a fiscal adjustment package after his fourth-term election win. The Finance Ministry is planning a primary surplus target of 0.5% of GDP for 2027, and measures under study include revising tax benefits.
The 2027 target was announced by Finance Minister Dario Durigan at the end of the previous month. The central target would equal 73.2 billion reais, with a tolerance margin of 0.25 percentage points above or below it. To formally meet the target, the primary surplus would need to reach at least 36.6 billion reais.
Spending pressures and tax benefits
Court-ordered debts, known as precatórios, along with spending on defence, health and education projects may fall outside fiscal limits. Those items total 64.7 billion reais. The government is also weighing a reduction of 10% a year in tax benefits not provided for in the Federal Constitution, a measure approved at the end of 2026.
The Independent Fiscal Institution, or IFI, puts the primary surplus needed to stabilise public debt at 2.1% of GDP, according to its June fiscal monitoring report.
Lula signals growth first
Lula said growth of public debt is a concern, but that the solution lies in stimulating economic growth rather than necessarily in spending cuts. He stressed that cuts could hurt the poorest. Durigan signalled there would be no sharp U-turn in economic policy.
Markets reacted to the election with a stock market fall and a stronger dollar. Analysts expect less priority on fiscal adjustment, while inflation projections have risen and growth expectations have fallen.
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Source: Independent Fiscal Institution
