BRAZIL - CONGRESS INFLATES AMENDMENTS WITH RESOURCES TAKEN FROM SOCIAL SECURITY AND SOCIAL PROGRAMS

THE APPROVAL OF THE 2026 ANNUAL BUDGET LAW BY THE NATIONAL CONGRESS REPRESENTS ONE OF THE MOST EXPLICIT EPISODES OF REDIRECTING STATE RESOURCES TOWARD PARLIAMENTARY POLITICAL INTERESTS, AT THE EXPENSE OF SOCIAL AND MANDATORY EXPENDITURES. BY INFLATING PARLIAMENTARY AMENDMENTS TO A RECORD R$ 61.4 BILLION, LAWMAKERS USED CUTS TO SOCIAL SECURITY AND SENSITIVE SOCIAL PROGRAMS, SUCH AS PÉ-DE-MEIA AND THE GAS SUBSIDY, AS FUNDING SOURCES.

FROM A BUDGETARY PERSPECTIVE, THIS MANEUVER CREATED ROOM FOR UP TO R$ 11.5 BILLION IN ADDITIONAL AMENDMENTS IN THE MIDDLE OF AN ELECTION YEAR, REINFORCING THE ELECTORAL AND CLIENTELIST NATURE OF THE DECISION. APPROVAL THROUGH A SYMBOLIC VOTE, WITH OPPOSITION ONLY FROM THE NOVO PARTY AND WITHOUT SUBSTANTIVE PLENARY DEBATE, HIGHLIGHTS THE NORMALIZATION OF PRACTICES THAT WEAKEN TRANSPARENCY AND SOCIAL OVERSIGHT OF THE PUBLIC BUDGET.

THE CONDUCT OF THE PROCESS BY THE RAPPORTEUR, DEPUTY ISNALDO BULHÕES, FURTHER WORSENED THIS SITUATION. SUCCESSIVE CHANGES TO THE REPORT, WITHOUT DETAILED DISCLOSURE OF THE CUTS AND WITHOUT CLARITY ON FINAL AMOUNTS, GENERATED SUCH DISORGANIZATION THAT EVEN CONGRESSIONAL TECHNICIANS COULD NOT DETERMINE THE EXACT VALUE OF THE EXTRA AMENDMENTS. THIS UNDERMINES THE CREDIBILITY OF THE BUDGET AS A PLANNING INSTRUMENT AND TURNS THE BUDGET LAW INTO A MERELY POLITICAL DOCUMENT.

ON THE FISCAL FRONT, THE APPROVED TEXT SIMULATES A FORMAL BALANCE. THE PRIMARY SURPLUS OF R$ 34.5 BILLION, SLIGHTLY ABOVE THE MIDPOINT OF THE TARGET, DEPENDS ON HIGHLY UNCERTAIN REVENUES. IT INCLUDES R$ 14 BILLION IN IMPORT TAXES THAT HAVE NOT YET BEEN REGULATED AND OPTIMISTIC REVENUE PROJECTIONS FROM CUTS TO TAX BENEFITS AND TAX INCREASES ON BETTING COMPANIES, FINTECHS, AND INTEREST ON EQUITY. IN PRACTICE, THE GOVERNMENT ITSELF ADMITS THAT THE TAX PACKAGE SHOULD YIELD AROUND R$ 20 BILLION, WELL BELOW THE R$ 30 BILLION INITIALLY CONSIDERED.

THE STRUCTURE OF THE AMENDMENTS REINFORCES THE CAPTURE OF THE BUDGET. OF THE TOTAL, R$ 26.6 BILLION IS ALLOCATED TO INDIVIDUAL AMENDMENTS AND R$ 11.2 BILLION TO STATE BENCH AMENDMENTS, BOTH OF WHICH ARE MANDATORY BY CONSTITUTION. COMMITTEE AMENDMENTS TOTAL R$ 12.1 BILLION, IN ADDITION TO EXTRA FUNDS CREATED DURING THE LEGISLATIVE PROCESS. THIS SHARPLY REDUCES EXECUTIVE DISCRETION AND TRANSFERS EFFECTIVE RESOURCE ALLOCATION POWER TO THE LEGISLATIVE BRANCH.

ONE OF THE MOST SERIOUS ASPECTS IS THE USE OF STATE BENCH AMENDMENTS TO INFLATE THE PUBLIC CAMPAIGN FINANCING FUND, WHICH JUMPED FROM R$ 1 BILLION IN THE GOVERNMENT’S ORIGINAL PROPOSAL TO R$ 4.96 BILLION AFTER CONGRESSIONAL CHANGES. THIS SHOWS THAT PART OF THE BUDGET WAS REORGANIZED TO FINANCE THE SELF-REPRODUCTION OF POLITICAL POWER, IN A CLOSED LOOP BETWEEN AMENDMENTS, ELECTIONS, AND THE MAINTENANCE OF MANDATES.

CUTS TO SOCIAL SECURITY REPRESENT A STRUCTURAL RISK. HISTORICALLY, PROJECTIONS HAVE ALREADY PROVEN INSUFFICIENT TO COVER ACTUAL EXPENDITURES, AND THE APPROVED REDUCTION MAKES THE SITUATION EVEN MORE FRAGILE. THE ACTION OF THE PLANNING MINISTER, SIMONE TEBET, WHO PERSONALLY WENT TO CONGRESS TO TRY TO REVERSE THE CHANGES, EXPOSES THE LEGISLATURE’S RESISTANCE TO ANY LIMITATION ON THE POWER OF AMENDMENTS.

THE BET BY GOVERNMENT-ALIGNED LAWMAKERS THAT THE EXECUTIVE CAN LATER RECOMPOSE RESOURCES THROUGH REALLOCATIONS OR VETOES ONLY POSTPONES THE CONFLICT. THIS PATH IS LIKELY TO GENERATE FURTHER TENSIONS BETWEEN THE GOVERNMENT OF LUIZ INÁCIO LULA DA SILVA AND CONGRESS, WHILE INCREASING UNCERTAINTY AROUND BUDGET EXECUTION THROUGHOUT 2026.

THE REDIRECTION OF REMOVED FUNDS TO EXPENDITURES CLASSIFIED AS RP 2, CONCENTRATED IN THE MINISTRIES OF INTEGRATION, CITIES, AND HEALTH, REPLICATES A STRATEGY USED IN THE PAST. THE 2021 EPISODE, WHEN RAPPORTEUR MÁRCIO BITTAR CUT MORE THAN R$ 16 BILLION FROM SOCIAL SECURITY TO CREATE SPACE FOR AMENDMENTS, SHOWS THIS IS NOT AN EXCEPTION, BUT AN INSTITUTIONALIZED PATTERN.

DESPITE ALL THE UNCERTAINTIES, THE GOVERNMENT ASSESSES THAT A BROAD SPENDING FREEZE WILL NOT BE NECESSARY, RELYING ON THE FLEXIBILITY OF THE FISCAL RULE, WHICH ALLOWS A ZERO PRIMARY RESULT. IN PRACTICE, THIS RELAXES THE COMMITMENT TO THE QUALITY OF FISCAL ADJUSTMENT AND SHIFTS THE PROBLEM TO FUTURE YEARS.

THE BUDGET ALSO PROVIDES FOR R$ 79.8 BILLION IN INVESTMENTS AND R$ 31 BILLION FOR HOUSING PROGRAMS, IN ADDITION TO THE APPROVAL OF ADDITIONAL MULTI-BILLION-CURRENCY CREDITS, SUCH AS R$ 8.3 BILLION TO COMPENSATE ICMS TAX REFORM LOSSES, R$ 14.4 BILLION FOR THE FNDCT, AND R$ 6.5 BILLION IN SPECIAL CREDITS, INCLUDING DEFENSE AND SUBSIDIES FOR THE TRANSPORT SECTOR.

IN SUMMARY, THE 2026 BUDGET IS NOT MERELY A FISCAL DOCUMENT, BUT A PORTRAIT OF THE BALANCE OF POWER IN BRAZIL. IT CONSOLIDATES CONGRESS AS THE MAIN MANAGER OF A SIGNIFICANT SHARE OF PUBLIC RESOURCES, WEAKENS SOCIAL SECURITY AND SOCIAL PROGRAMS, INCREASES FISCAL RISK, AND TURNS THE BUDGET INTO AN INSTRUMENT OF POLITICAL SELF-PRESERVATION. THE RESULT IS A LESS EFFICIENT, MORE EXPENSIVE STATE THAT IS INCREASINGLY DISCONNECTED FROM THE SOCIAL PRIORITIES OF THE POPULATION.