The initial projections for the Union budget in 2027 indicate that the federal government will not have sufficient fiscal space to comply with the minimum constitutional investments in health and education.
The limitation stems from the rules of the new tax framework, in force since 2023, and the resumption of full payment of precatory within the expenses ceiling. The situation already lights the warning to the need for adjustments to the current tax management model.
The estimates are included in the 2026 Budgetary Guidelines Bill (PLDO), presented on Wednesday (16). The document brings projections by 2029 and points out that, by 2027, discretionary expenses (those that the executive can handle, such as investments and public machine costs) would total R $ 122.2 billion. Of this total, R $ 56.5 billion are already reserved for parliamentary amendments, leaving only R $ 65.7 billion.
However, the available value will be insufficient: R $ 10.9 billion would be left just to honor constitutional floors in health and education. That is, the government will have no margin for other non -mandatory expenses. The problem is not a lack of cash, but space within the rules of the tax framework.
The situation gets worse in the following years. By 2028, estimated fiscal insufficiency is R $ 87.3 billion. Already in 2029, the projected deficit reaches R $ 154.2 billion.
Shock frame with constitutional floors
The obstacle occurs because current tax rules do not follow the constitutional requirement of minimum floors for health and education. Since the end of the spending ceiling, percentages have been linked to revenue again: 15% for health and 18% for education. As these expenses are linked to the growth of revenue, they tend to consume a growing portion of the budget – which presses and flattens other expenses.
The tax framework, on the other hand, determines that the growth of total expenditure of the federal government is limited to 0.6% to 2.5% above inflation per year. This mismatch between legal obligations and tax rules creates a structural conflict.
Also, o. By 2026, these expenses – which total R $ 115 billion this year – are temporarily out of the tax rule by decision of the Supreme Court.
Without this exclusion, the volume of precatories also takes up space that could be used for investments and social programs.
Government admits the need to review rules
The PLDO itself recognizes the need for “revenue increased measures” and a review in mandatory expenses and rigid allocations. The goal is to ensure margin for the maintenance of relevant public policies without compromising the expected fiscal goals.
The early tax alert sheds light on a challenge that the Lula government will have to face in 2025: to revise or flexible frames of the framework to compatible them with the constitutional devices and the growing demand for public investments.
