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Projections for 2027 Indicate Risk of Shutdown in Brazil, With Mandatory Expenses Consuming Almost the Entire Budget and Threatening Essential Services
The public accounts of Brazil are under heavy pressure, and the debate already anticipates a critical scenario for 2027. Experts warn that the spending of the Lula government, particularly with mandatory expenses, could consume almost the entire federal budget.
The direct consequence would be administrative paralysis, known as “shutdown,” a phenomenon in which the State has no resources to maintain basic services and investments.
The most important aspect is that the projection indicates a shock between revenue and constitutional obligations. Spending such as salaries of civil servants, social security, health, and education take priority and consume the majority of the budget.
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This would leave virtually no room for so-called discretionary expenses that keep the public machinery running.
Understand What “Shutdown” Is
The shutdown occurs when there are few or no resources left for the expenses that the government can manage.
These are the expenses that guarantee investments in infrastructure, road maintenance, contracts with third parties, scholarships, and social programs. Without these resources, the country may face the shutdown of ministries, schools, and hospitals.
Economist Otto Nogami, a professor at Insper, warns that the situation is already causing concern in the market. He emphasizes that the proximity of zero discretionary expenses is one of the main fiscal challenges facing Brazil in the coming years.
The report from IFI (Independent Fiscal Institution), linked to the Senate, reinforces the risk of paralysis happening as early as 2026 if no action is taken.
Services at Risk
If the projected scenario is confirmed, the impact will be immediate on essential services. Programs like Farmácia Popular, Pé-de-Meia, and Pronatec could be suspended.
Scholarships from CNPq, Capes, and even Bolsa Atleta are at risk of not being paid. Federal works and cleaning contracts in universities and hospitals would also be threatened.
For Nogami, the most severe consequence would be the inability to keep hospitals, schools, universities, and even security agencies functioning. He defines the situation as a total paralysis of the public machine.
Negative Budget Ahead
The PLDO (Bill of Budgetary Guidelines) already projects a “negative budget” for 2027. The term describes the situation in which mandatory spending consumes all available resources.
In this case, there would be nothing left for discretionary expenses, which makes the minimum execution of government programs unfeasible.
Although calculations indicate that only in 2029 would mandatory expenses reach R$ 2.838 trillion, leaving less than R$ 10 billion for free use, the risk is that the 2026 election will accelerate the process.
Experts fear that spending in an election year, such as generous salary adjustments for civil servants, could bring the paralysis forward to 2027.
Political Risk
The Minister of Finance, Fernando Haddad, is trying to avoid the crisis by increasing revenue. He recently advocated for raising the IOF as necessary to keep the machinery running even in 2024. According to Haddad, without a revenue boost, the government would already be at risk of shutting down.
However, analysts doubt that the Lula government is genuinely willing to cut spending. With a fragile parliamentary base and on the eve of elections, there is resistance in Congress to austerity measures.
Parliamentarians prioritize their own re-elections and press for more resources, which worsens the fiscal fragility.
The Causes of Excessive Spending
The anticipated stranglehold has three main pillars: increasing mandatory expenses, pressure from court-ordered payments (precatórios), and growth in parliamentary amendments. Each factor has a direct effect on the budget.
In the first case, social security and civil servant salaries grow beyond the space allowed by the fiscal framework. This reduces the margin for investments.
On the other hand, court-ordered payments, which are government debts, will again exert pressure in 2027, with a forecast of R$ 70 billion in expenses.
Finally, parliamentary amendments, many of which are mandatory, expand during election years and already consume a significant portion of the budget.
The Path of Revenue
The solution defended by the government so far is to increase taxes. The strategy, despite criticisms from the market and society, has been reinforced. Proposals include taxing financial assets and betting houses, for example.
For economist Benito Salomão from the Federal University of Uberlândia, recognizing the grave nature of the scenario is part of a political strategy.
The government uses the warning to justify its revenue agenda. According to him, cutting mandatory expenses is politically unviable because the population depends directly on them. Therefore, the only solution is to raise the tax burden.
In Salomão’s assessment, the government will continue to balance the accounts in this “art of revenue generation,” even if it is unpopular.
He points out that even with pessimism surrounding the new fiscal framework, the government has managed to advance on this path.
Out-of-Control Spending
João Mauricio Rosal, chief economist at Terra Investimentos, evaluates that the root of the problem lies in mandatory expenses.
He cites unemployment insurance as an example, which grows uncontrollably. For him, the increase in the minimum wage and the link of expenses to revenues further compromise the accounts.
Rosal advocates for revising the constitutional minimums for health and education. According to him, the automatic link to revenue growth has lost its meaning, especially in education, as the Brazilian population ages.
He criticizes Haddad’s strategy of increasing revenues only in an emergency manner, comparing it to “chasing one’s own tail.”
The Risk of Paralysis
Despite the warnings, Rosal does not believe in a shutdown. For him, it is not in any government’s interest to allow the country to stop. He bets that in 2026, the new president will negotiate exceptions and adjustments to avoid paralysis.
This will, according to him, be a new phase of fiscal transition, with relaxed rules and improvised solutions.
In practice, the economist believes there will be a last-minute scramble, but a political agreement will prevent the collapse. The effort, however, will require cuts and containment of mandatory expenses.
Postponed Debate
Salomão also sees room to avoid the worst. For him, there is still time until 2027 to correct the course. But he emphasizes that fiscal discipline and political consensus will be necessary to stabilize public debt.
Whether with a spending ceiling, a framework, or another mechanism, the government will need to adopt stricter rules.
The consensus among experts is clear: the government’s excessive spending creates a serious fiscal problem. The debate, however, has been postponed.
Unpopular measures are sidelined in the name of political interests, especially in light of the elections. The big question is whether the bill will come due before or after 2026.
Possible Consequences
The risk is not only in social programs and scholarships. The paralysis can directly affect the lives of citizens.
Universities without cleaning, hospitals without maintenance contracts, abandoned roads, and delays in transfers to states and municipalities are some of the practical consequences.
Moreover, investors and the market may lose confidence in Brazil. Fiscal instability undermines the government’s capacity to plan and execute public policies. The environment of uncertainty drives away private investments, worsening the economic situation.
Narrow Path
The outlook for the coming years is challenging. The pressure for spending is high, commitments are constitutional, and the parliamentary base is fragile.
Any attempt to cut faces strong social and political resistance. Raising taxes is the chosen path, but it generates backlash and limits growth.
Therefore, the country walks a narrow path. On one side, the risk of shutdown. On the other, the increase in the tax burden. Between them, the need for reforms and adjustments that seem increasingly distant in the electoral environment.
Election as a Turning Point
The 2026 election will be decisive. The government’s behavior during that period may accelerate or delay the crisis. If there is an excessive increase in spending for electoral purposes, the next president will take office in 2027 with the machinery paralyzed.
Conversely, it might be possible to gain time until 2029, but still with enormous difficulty.
Experts differ on the outcome, but they agree that the current trajectory is unsustainable. Without structural changes, Brazil will face a period of strong fiscal instability. The next government, whichever it may be, will have to deal with the problem immediately.
The projections of a negative budget challenge the capacity of the Brazilian State to function. Mandatory expenditures are growing uncontrollably, and the solutions found so far boil down to increasing taxes. Meanwhile, social programs, scholarships, and basic services are at risk of stopping.
The most important thing is that the debate can no longer be postponed. The country needs to discuss concrete measures before the crisis becomes irreversibly established.
Until then, Brazil will remain in an unstable balance between forced revenue and uncontrollable spending, with the constant threat of shutdown on the horizon.
The information in this article is from the ND Mais portal and other reputable sources.
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