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In The Face Of Rising Taxes And Growing Spending, Brazil Faces Historic Deficit And Expanding Public Debt, Despite Record Revenue And Promises Of New Social Programs That Increase Pressure On The Federal Budget.
The Brazil closed 2024 with a nominal deficit of R$ 998 billion and a gross debt at 76.1% of GDP, despite the adoption of at least 27 tax increase measures since the beginning of 2023, in the third term of Luiz Inácio Lula da Silva (PT).
During this period, the tax burden rose to 32.3% of GDP in 2024, but expenditures grew at a faster pace, putting pressure on public accounts.
Taxes Rise, Expenditures Grow Faster
Since 2023, the government has promoted changes that increased taxes on different fronts.
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Included in this set are increases in import tariffs, additional charges on the oil sector, the raising of PIS/Cofins and IOF, as well as the revision of tax benefits and the new tiebreaker criteria in the Carf, which expanded the Union’s ability to collect.
The total of 27 increases includes changes with greater impact and effective duration, disregarding measures subsequently overturned or isolated adjustments.
The revenue reinforcement, however, did not compensate for the dynamics of spending.
The federal revenue for 2024 reached a record level — the official data from the Federal Revenue indicates R$ 2.652 trillion for the year —, but total expenditure grew more, leading the nominal result of the consolidated public sector to the highest value in the historical series started in 2002.
In terms of indebtedness, the DBGG advanced and ended 2024 at 76.1% of GDP, an accumulated increase since the beginning of the government.
IOF Provisional Measure Falls And Frustrates Extra Revenue Attempt
The latest offensive to increase revenue was the Provisional Measure 1.303, presented as an alternative to the direct increase of IOF.
The text proposed tax changes on fintechs, gambling companies, and some investment funds, estimating to increase fiscal space between 2025 and 2026.
On October 8, the Chamber of Deputies removed the PM from the agenda through a request approved by 251 votes, which led to the text losing its validity.
The outcome represented a setback for the Planalto and the Ministry of Finance.
Tax Burden On The Rise, Pressure On Accounts
The increase in taxes since 2023 has reflected in the gross tax burden, which rose from 31.2% of GDP in 2022 to 32.3% in 2024, the latest available data.
The participation of the central government in the total also grew, reaching 21.4% of GDP.
Although the economy has reacted in some sectors and revenue has increased in real terms, the fiscal picture has remained pressured by rising mandatory expenditures and new public policies.
The consolidated nominal deficit — which considers the primary result plus debt interest — ended 2024 at R$ 998 billion.
There was improvement in the 12-month horizon throughout the second half of that year, but not enough to reverse the accumulated negative balance.
Where The Government Says It Uses The Higher Revenue
The Planalto claims that the tax increase measures help finance social programs and provide predictability to the fiscal framework.
Among the cited initiatives are the Bolsa Família, the Pé-de-Meia (targeted at high school students), and the Gas For The People, which replaces the Gas Aid with a promise to expand it to 15.5 million families by 2026.
According to the government, the sum of benefits could reach up to 50 million people registered in the Unique Registry when coverage is full.
In the specific case of Gas For The People, the design provides for the free distribution of 13 kg gas canisters and the transition throughout 2025, with consolidation in 2026.
The regulation defines eligibility criteria and establishes a maximum number of refills per family per year.
Official estimates point to the distribution of tens of millions of canisters in 2026, within the budget allocated for the program.
Income Tax Exemption Up To R$ 5 Thousand Advances In Congress
In parallel to the revenue-increasing measures, the government has pushed the so-called income reform, which changes the taxation of individuals.
On October 1, the Chamber of Deputies unanimously approved the bill that eliminates Income Tax for those earning up to R$ 5,000 per month, with 493 votes in favor.
The text also provides for regressive discounts between R$ 5,000.01 and R$ 7,350, maintaining the effective rate reduced in that range, and creates a minimum rate of 10% for high-income debtors with low effective rates.
The proposal still depends on Senate analysis and is expected to come into effect from 2026, if confirmed.
According to the economic team, the expansion of the exemption will be compensated by measures of taxation on higher incomes and adjustments in the tax base of regimes that currently reduce the effective burden.
The Finance Ministry argues that, combined with the taxation of exclusive funds and foreign earnings, the change improves the progressivity of the system while supporting fiscal targets through other revenue sources.
Fiscal Prospects And Challenges
The combination of high tax burden and high nominal deficit keeps adjustment as a priority.
The government insists that the recomposition of revenue is necessary to finance social policies and stabilize the debt, while market interlocutors demand spending control and predictability to reduce financing costs.
After the fall of PM 1.303, new revenue fronts have returned to the debate, such as rules for tax credits and adjustments in specific sectors; however, any progress will depend on support in Congress.
The debate surrounding fiscal space will continue to be conditioned by the economic performance, interest rate behavior, and the legislative schedule for 2025 and 2026.
As the electoral cycle approaches, the pressure for social deliverables and balanced accounts tends to intensify the negotiation between the Executive and Legislative branches.
What Should Be The Country’s Priority: Reducing The Deficit By Cutting Expenses Or Insisting On New Sources Of Revenue?
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