Brazil Runs R$30B February Gap Despite Record Tax Collections

The Rio Times, the Latin American financial news outlet, reports that Brazil’s fiscal deficit reached R$30 billion ($5.3 billion) in February, according to Treasury data released Monday. The result was better than the R$34.3 billion ($6 billion) market consensus from the Prisma Fiscal survey and improved on February 2025’s R$31.6 billion ($5.5 billion) shortfall.

But the underlying dynamics remain concerning. Revenues grew 5.6% above inflation to R$157.8 billion ($27.7 billion), driven by higher IOF and Cofins tax collections and rising social security contributions from formal employment growth. Expenses, however, rose 3.1% in real terms to R$187.7 billion ($32.9 billion).

Where the Money Went

Four spending categories drove the February deterioration. Education costs rose by R$3.4 billion ($600 million), primarily from Pé-de-Meia, Lula‘s flagship program that pays stipends to low-income high school students. Personnel spending increased R$2.2 billion ($390 million) from civil servant salary adjustments.

Social security costs added R$1.7 billion ($300 million), reflecting both demographic pressure and benefit indexation. Health spending rose R$1.4 billion ($245 million). Together, these four items accounted for R$8.7 billion ($1.5 billion) in additional outlays compared to the previous year.

The personnel increases will compound further after Lula signed PL 5874/2025 on Monday — the same day the deficit data was released — creating over 24,000 new federal positions with a fiscal impact of up to R$5.3 billion ($930 million) in 2026.

Year-to-Date: January’s Surplus Still Provides a Cushion

For the first two months of 2026, the government retains a cumulative primary surplus of R$56.85 billion ($10 billion), thanks to January’s traditionally strong R$86.9 billion ($15.2 billion) surplus. First-bimester revenues totaled R$430.5 billion ($75.5 billion), up 2.8% in real terms, while expenses reached R$373.6 billion ($65.5 billion), up 3%.

Public investment showed a notable bright spot: R$9.5 billion ($1.7 billion) in infrastructure spending during January and February, up 49.7% in real terms from the same period last year.

The Credibility Gap

The government’s official 2026 target is a primary surplus of 0.25% of GDP — approximately R$34.3 billion ($6 billion). The fiscal framework allows a tolerance band of 0.25 percentage points, meaning the result can range from zero to a R$68.6 billion ($12 billion) surplus without triggering spending triggers.

However, the Finance and Planning ministries disclosed last week that the full-year deficit projection — including all expenditures such as court-ordered payments and selected defense, health, and education outlays — stands at R$59.8 billion ($10.5 billion). The gap between the official target and the official projection underscores why markets remain skeptical of Brazil’s fiscal trajectory.

With the Selic at 14.75% and inflation expectations drifting further above target, the February deficit data offers a snapshot of a government that is spending more, collecting more, and still falling short — while the structural gap between ambition and reality continues to widen.