Brazil's Congress approved the 2026 Budget Guidelines Law (LDO), exposing a deal between the Executive and Legislative branches that prioritizes electoral interests over fiscal restraint. The Lula government gains flexibility in contingency calculations, while lawmakers secure swift release of mandatory amendments. This measure worsens exceptions to the fiscal framework, projecting deficits and rising public debt.
The approval of the 2026 LDO underscores a convenience pact between President Luiz Inácio Lula da Silva's (PT) government and the National Congress, in an election year. For the Executive, the law allows resource contingencies based on the fiscal target's floor – zero result, excluding interest and exceptional expenses – rather than the target's center, which calls for a 0.25% GDP surplus, equivalent to R$ 34 billion.
In return, the Legislature set a schedule for mandatory amendments: 65% of the R$ 40.8 billion budgeted must be paid by the end of the first semester of 2026, totaling R$ 26.5 billion for lawmakers' electoral bases.
The picture worsens due to numerous exceptions that exclude spending from the fiscal target calculation, undermining the framework's credibility. According to a report by O Globo newspaper, between 2023 and 2026, the government will spend R$ 170 billion outside approved limits. For 2026, deductions are projected at R$ 88 billion, an 80% increase from R$ 48.7 billion in 2025.
Among the deductions are R$ 10 billion for Correios, R$ 5 billion for the Armed Forces, R$ 4.2 billion for state-owned investments in the PAC program, and up to R$ 2 billion potentially for health and education via the Social Fund. On revenues, there is a forecast of R$ 14 billion extra from import taxes on steel, chemicals, and automobiles, viewed as an unrealistic projection to avoid immediate contingencies.
Experts estimate the effective 2026 result will be a deficit of about R$ 70 billion, with gross debt nearing 80% of GDP. In an electoral context, no fiscal restraint advances are expected, leaving the hole for the next administration.