Budget Adjustments Fall Short of Resolving Brazil’s Fiscal Issues

(Analysis) Adjusting minimum spending floors for healthcare and education will not solve Brazil’s budget problems.

The National Treasury reports these floors are tied to government revenue. Growing mandatory expenses like salaries, pensions, and social benefits strain the fiscal framework.

Experts argue that reducing the healthcare spending floor increases parliamentary amendments’ influence.

This change would amplify political control over resource allocation, creating funding disparities across Brazil.

In March, the Treasury reported that altering these floors could divert up to R$133 billion ($24 billion) by 2033.

This diversion would allow for other expenditures but create significant shortfalls starting in 2029.

The economic team studied three scenarios: maximum 2.5% real spending growth, per capita GDP growth, and population growth.

Currently, healthcare and education spending is based on federal tax revenue. Healthcare uses 15% of Net Current Revenue, and education uses 18% of Net Tax Revenue.

These expenditures grow faster than the 2.5% fiscal framework limit, leaving other areas unfunded by 2028. This includes housing, gas assistance, civil defense, and federal agency operations.

The National Treasury used January’s macroeconomic parameters for their simulation. Final expense allocation depends on parliamentary amendments.

Budget Adjustments Fall Short of Resolving Brazil’s Fiscal Issues

Without intervention, discretionary expenses will total R$41.8 billion ($7.7 billion) in 2029, then turn negative with a R$14.8 billion ($2.7 billion) shortfall in 2030.

The budget needs R$76.9 billion ($14 billion) for non-mandatory expenses outside healthcare and education to avoid collapse.

Adjusting the spending floors to the 2.5% limit would increase discretionary expenses to R$52.4 billion ($9.6 billion) in 2029 and R$11.2 billion ($2 billion) in 2030, still below necessary levels.

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Camillo Bassi from the Institute for Applied Economic Research (Ipea) points out to Estadão the issue is mandatory expenses exceeding 90% of the budget.

Adjusting floors will not remove mandatory commitments to healthcare and education. Even the Union’s Revenue Unlinking (DRU) won’t solve this.

The Union must contribute 23% of Fundeb for states and municipalities by 2026.

The Ministry of Planning and Budget acknowledges these challenges and plans to review expenses. The 2025 Annual Budget Bill will be detailed by August 31.

Currently, parliamentary amendments consume 40% of non-mandatory healthcare expenses. Revising the healthcare floor would increase their share, disrupting healthcare planning.

From 2014 to 2022, amendments in the Ministry of Health’s budget grew from 3.2% to 9.8%.

This shift favors small municipalities with limited spending capacity, leading to system inequality.

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