The Senate Independent Fiscal Institution (IFI) called the negative discretionary expenditure projections included in the Budgetary Guidelines (PLDO) bill of 2026.
According to the report released on Friday (23), this scenario contradicts the logic of budget execution and fails to comply with minimal constitutional requirementsmaking the tax regime in force unsustainable without structural reform until the end of the decade.
IFI warns that the space for discretionary expenses – those under direct control of the executive, such as investments, operation of the public machine and non -compulsory public policies – will be drastically reduced until negative, which is considered technically impossible.
According to PLDO data, The amounts of these expenses would fall from R $ 164.1 billion in 2026 to R $ 75.3 billion in 2027R $ 9.9 billion in 2028 and would reach –R $ 42.9 billion in 2029.
When considering only liquid discretion expenses – that is, not counting parliamentary amendments and constitutional health and education minimums – the situation is even more serious: –R $ 10.9 billion as early as 2027, –R $ 87.3 billion by 2028 and –R $ 154.2 billion in 2029.
These projections, according to IFI, start from the premise that mandatory expenses will continue to grow and occupy virtually the entire tax space available, leaving discretionaries without margin and even in the negative field.
For the institution, this ignores the existence of constitutional floors for several of these expenses and compromises the provision of essential public services.
“The discretionary expenses of the Executive Power would be compressed by mandatory expenses until they become negative, which, of course, is a completely unrealistic scenario,” the report says.
IFI also criticizes the inconsistency between the primary surplus goal of 1.25% of GDP in 2029 and the compression of discretionary expenses, indicating that this result would only be possible with unviable cuts in the basic function of the state.
“The projected fiscal surpluses are based on unrealistic assumptions, such as negative discretionary expenses, highlighting a structural imbalance in public accounts,” says the text.
For IFI, with no structural spending containment measures, the fiscal framework approved in 2023 tends to collapse.
“With compressed discretionary expenses up to negative and no contingency amounts, tax risk is aggravated and budget execution for the coming years becomes unfeasible, indicating a predictable functional collapse of the current tax framework.”
O Report concludes that the increase in mandatory expenses, the exhaustion of the collection potential and the budget plasty will “inevitably, to a profound reform of the tax regime”.
IFI argues that this reform needs to be done by 2029 to avoid a scenario of administrative paralysis and non -compliance with constitutional obligations.
