Brazil’s States and Cities Overtake Federal Government in Public Spending

Official data from Brazil’s National Treasury and the Brazilian Institute of Economics show a striking shift in the country’s public finances.

Since 2019, state and municipal governments have ramped up their spending far faster than the federal government, fueled by record federal transfers. In 2024, these transfers hit R$595.7 billion ($104.5 billion), up 43.2% from R$416 billion ($73.0 billion) in 2019.

This increase comes from higher oil royalties, the expansion of “Pix amendments,” and a federal strategy that raised tax revenues and, as a result, mandatory transfers.

Regional governments spent R$1.84 trillion ($322.8 billion) from January to September 2024, compared to R$1.63 trillion ($286.0 billion) by the federal government.

In the third quarter alone, states and municipalities spent R$631 billion ($110.7 billion), while federal direct spending was R$515 billion ($90.4 billion). This marks a clear reversal from 2019, when the two levels spent nearly the same.

The quarterly average for regional spending jumped from R$483 billion ($84.2 billion) in 2019 to R$612 billion ($107.4 billion) in 2024, while federal spending fell in real terms as part of a fiscal adjustment.

No similar adjustment happened at the regional level. Regional governments kept increasing their spending, especially on investments and personnel.

Brazil’s Municipal Deficits Surge Despite Investment Gains

In 2024, municipal investment spending grew 25% in real terms, while personnel costs rose 5%. Other current expenses climbed 14%.

More than half of Brazil’s municipalities ended 2024 with a primary deficit, totaling R$32.6 billion ($5.7 billion), more than double the previous year’s figure. Large cities led the way, but deficits spread across all sizes.

This surge in local spending comes as Brazil’s overall fiscal deficit remains high. The country’s fiscal balance was -8.5% of GDP in 2024, according to FocusEconomics, with an average deficit of -7.75% over the last decade.

The federal government tried to rein in its own spending, but the rising outlays by states and municipalities offset these efforts. The fiscal multiplier in Brazil is slightly above 1%, meaning each real spent by the government adds more than one real to GDP growth.

This contributed to above-expected economic growth from 2021 to 2024. However, experts warn that if regional spending focuses on permanent costs, like salaries, rather than temporary investments, it could create long-term problems.

The lack of coordination between federal and regional fiscal policies complicates the Central Bank’s efforts to control inflation. Brazil’s rules for fiscal responsibility exist, but uneven enforcement and ad hoc changes have weakened their effectiveness, especially at the local level.

The story behind these figures is clear: regional governments now drive public spending in Brazil. Their expansionary policies, made possible by federal transfers, risk undermining national fiscal discipline.

For businesses and investors, this means watching not just Brasília but also the thousands of state and municipal budgets now shaping Brazil’s economic path.

More: Brazil news in English, every day from The Rio Times.

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