Brazil to enforce strict budget controls and tax limits in 2027

Brazil will stick to its spending caps even after general elections in 2026 and will only relax its fiscal restraints in 2027, the government’s new Planning Minister said on Monday.In an interview with Reuters following his appointment on Wednesday, Mello indicated that the government is also preparing to implement stricter fiscal controls from 2027 under its existing framework.Mello, who previously led the Finance Ministry’s Economic Policy Secretariat, said his new role reflects closer coordination between the Planning and Finance ministries.This alignment is aimed at strengthening mechanisms to manage federal spending more effectively.Government seeks to calm fears of fiscal looseningThe remarks come amid concerns that Brazil could adopt a looser fiscal stance ahead of the presidential election, particularly as President Luiz Inacio Lula da Silva seeks a fourth term.However, Mello pushed back against such speculation, emphasising continuity in fiscal management."Every year under President Lula's government, there have been measures to improve revenues, spending, management, and the design of benefits and social programs.This year will be no different just because it is an election year," Mello said.He added that the government’s approach relies on incremental adjustments rather than sweeping reforms."We do this not through big packages or grand plans, but through continuous adjustment measures, on both the spending and revenue sides, which have proven effective," he said.Fiscal triggers set to take effect after deficitMello confirmed that fiscal mechanisms designed to limit spending will be activated following a primary deficit of 0.4% of gross domestic product recorded in 2025.The government is set to submit its 2027 budget guidelines bill to Congress next week.A fiscal package introduced in 2024 established automatic triggers to enforce discipline if deficits persist from 2025 onward.One such measure prohibits the government from granting or expanding tax incentives, while another caps personnel spending across all branches of government between 2027 and 2030.Under the framework, payroll expenses will be restricted to a minimum real growth rate of 0.6% annually.Treasury data shows that federal payroll costs rose 4.3% above inflation last year, reaching 408 billion reais ($80.3 billion)."Brazil has always had triggers that were never activated. Now they will be," Mello said.Limited flexibility under fiscal frameworkThe current fiscal rules allow for exceptions only in cases of public calamity.However, the government secured congressional approval this year for an exception to reinstate expired tax incentives for data centres, highlighting limited but targeted flexibility within the system.Surplus target set for 2027Looking ahead, Mello said the government will formalise a primary surplus target of 0.5% of GDP for 2027, with a tolerance band of 0.25 percentage points.He described the goal as ambitious but achievable, reinforcing the administration’s intent to balance fiscal sustainability with social spending priorities.The planned measures underscore Brazil’s effort to maintain credibility in its fiscal policy, even as political pressures mount in the lead-up to national elections.The post Brazil to enforce strict budget controls and tax limits in 2027 appeared first on Invezz