The exception is the rule: Lula has already spent R$337 billion outside the fiscal target.

With the aid package for sectors affected by the tariff hike , the Luiz Inácio Lula da Silva (PT) government will add R$336.9 billion in expenses removed from the fiscal rules from the beginning of the term until now.

The amount includes R$327.4 billion that had already been excluded between 2023 and 2025 and the R$9.5 billion from the new package.

To provide R$30 billion in support to companies impacted by the tariff hike, the Treasury will directly contribute R$4.5 billion to guarantee funds, as collateral for the financing. Another R$5 billion will come from tax waivers through the Reintegra program, which refunds tax amounts spent on production to exporters.

If approved by Congress, the measure will represent yet another exercise in creative accounting to ensure compliance with this year's goal of eliminating the federal government's primary deficit. Even if the legislature doesn't approve it, the government could appeal to the Supreme Federal Court (STF), which has authorized such initiatives.

Tarifaço should be accommodated within the expenditure limit

For Alexandre Andrade, director of the Independent Fiscal Institution (IFI), affiliated with the Senate, these measures only reinforce distrust regarding the balance of government spending. "These practices somehow affect stakeholders' perceptions of the government's commitment to fiscal rules and public debt sustainability," he says.

João Pedro Paes Leme, an economist at Consultoria Tendências, points out that the biggest problem is the precedent it sets. "You end up creating a chain of incentives to exclude items from the target whenever there's an emergency, always resorting to this type of waiver [formal license to disregard the rule]," he says.

"The framework already includes a 0.25% margin to accommodate unforeseen events, such as the tariff hike. But the government is not targeting the center of the target," he adds.

Fernando Schüler, a political scientist and economist at Insper, states that excluding spending from the target has become "an easy way out for the country." "Formally, we respect a fiscal rule, but we accept the almost recurrent exceptions to that same rule," he says.

"The correct alternative, to cut spending and establish priorities, is not being considered. The government and Congress—which also drives this—are unwilling to define priorities. The easy solution is to create chronic fiscal maneuvers, like the tariff hike."

In practice, the government pretends to comply with the fiscal framework, but with the exception of expenditures, sequestering future revenues, which are further compounded by interest. "Brazil is betting on a chronic deficit, which will lead to debt, taking out loans at 15% [the Selic rate]," says Schüler.

"When I saw those people smiling at the signing of the tariff-raising measure, I thought, 'Nobody's paying the bill.' As they say, the weakest lobby in Brasília is the unborn—that is, future generations."

Transition, calamity, fires, tariff hikes and more: expenses excluded from the fiscal target under the Lula administration

2023

• Court orders: R$92.3 billion
• Transition PEC: R$145 billion
• Cultural support R$ 3.8 billion

Total : R$241.2 billion

2024

• Calamity in Rio Grande do Sul: R$29 billion
• Revenue waiver (RS Calamity): R$ 124 million
• Fires: R$ 1.4 billion
• Recomposition of the Judiciary's budget ceiling: R$1.3 billion
• Federal state-owned companies: R$1.9 billion

Total: R$ 33.7 billion

2025

• Court orders: R$48.6 billion
• Federal state-owned companies: R$3.7 billion
• Aid to those affected by the tariff hike: R$9.5 billion

Total: R$61.8 billion

Total 2023-2025 : R$ 336.9 billion

On the way out, the government bet on increasing spending

Budget circumvention to meet spending limits—exemplified by the support for tariff hikes—is not a new practice, but it has been intensified under the Workers' Party administration.

From the outset, the resources from the Transition Amendment Proposal – no less than R$145 billion excluded from the fiscal rule – served to strengthen social programs like Bolsa Família and guarantee public investments at the beginning of the current term.

Also in 2023, a Supreme Federal Court ruling authorized the government to pay part of the court-ordered debts outside the fiscal rules until 2026. The license allowed the resumption of payment of these debts after the Court blocked a 2021 constitutional amendment that postponed their repayment. In that first year alone, the exclusion of these debts totaled R$92.3 billion.

From then on, exceptions became standardized. That same year, the federal government used Article 65-A of the Fiscal Responsibility Law to exclude transfers of nearly R$3.9 billion earmarked for the cultural sector from the fiscal target.

The amount was transferred via the Paulo Gustavo Law. The measure allowed states, municipalities, and the Federal District to receive emergency financial support for cultural initiatives without fiscal impacts. The relevant article of the LRF waives the need to account for transfers to regional governments for fiscal target purposes.

Exceptionalities include rain in RS, fires and the Judiciary's ceiling

In 2024, R$31.8 billion in deductions from the fiscal target were justified by exceptional circumstances. The largest impact came from the declaration of a state of public calamity in Rio Grande do Sul, which allowed R$29 billion to be spent outside the fiscal rules. R$1.4 billion was also allocated to combat fires in the Amazon and Pantanal, under the climate emergency heading.

Furthermore, R$1.3 billion was withdrawn to restore the spending cap for the Judiciary and the National Council of the Public Prosecutor's Office (CNMP), following the TCU's ruling in Ruling 1,103/2024. The adjustment was made through a provisional measure, which was criticized in the legislature. The government defended the provisional measure as a "technical and emergency" adjustment to correct a calculation error in the spending cap, which had disregarded housing assistance as a regular expense.

The Lula administration even attempted to exclude the "Pet-de-Meia" (Soybean Soup) and Gas Aid expenses from the fiscal target, but gave up after criticism and the risk of being accused of fiscal pedaling, similar to those that occurred under the Dilma Roussef (Workers' Party) administration. Because these are mandatory expenses linked to social rights, they could not be ignored in the fiscal target.

The government also excludes spending by federal state-owned companies from the fiscal target. This primarily involves investments and operating expenses of companies such as Petrobras, Banco do Brasil, Caixa, and BNDES, which use their own resources and do not depend directly on the National Treasury.

The argument is that deficits may arise due to investments in important projects and do not represent financial losses for the country. Exclusions totaled R$1.9 billion in 2024, and R$3.7 billion is projected for 2025.

Precatórios are back in the debate, but will continue to be excluded from the target

The exclusion of court-ordered debts represents the largest amount removed from the fiscal framework in 2025. R$48.6 billion will be paid to Brazilian state creditors outside the target by the end of the year. However, the situation may change in 2026.

Currently, the provisional system in force is the result of the Supreme Federal Court's May 2023 decision, which authorized the government to exclude part of the payments outside the fiscal rules until the end of 2026. However, the determination to pay all expenditures within the fiscal rules from 2027 onwards would drastically limit the government's budgetary space for other expenditures.

Proposed Constitutional Amendment Proposal 66/2023, introduced by the National Congress, aims to make this reinstatement much smoother and, in practice, free up budget space and reduce the risk of a collapse in public finances. The bill passed the Chamber of Deputies and was approved in the first round in the Senate, by a vote of 62 to 4. Only the second round of voting and subsequent enactment by Congress are missing for the new rules to come into effect, as constitutional amendments do not require presidential sanction.

For Schüler, the situation with court-ordered debts is "scandalous." "We're paying court-ordered debts with public debt," he says. "It's a ruse to avoid the difficult and necessary exit from fiscal adjustment. And the taxpayer pays for the magic." He criticizes the Supreme Federal Court's complicity. "The Supreme Federal Court does the same, accepting everything in Brazil as exceptional," he says.

"Minister [Luís] Fux removed court-ordered payments from the rules," Schüler recalls, referring to the 2023 decision. "[Minister] Flávio Dino singled out firefighting funding with a stroke of a pen, a resource that should have been part of a basic environmental emergency program. And recently, [Minister] Dias Toffoli removed compensation for victims of INSS fraud from the budget."

He believes the Supreme Court is helping with budget management, which should be the role of the Legislature. "In the case of retirees, the Attorney General's Office defended the exclusion, arguing that the fraud violated fundamental rights, and therefore was constitutional, and therefore, it was up to the Supreme Court to decide," he explains.

"But the fiscal rule is approved by Congress, budget management is Congress's responsibility, and extraordinary credits are approved by Congress. How does a Supreme Court justice make this decision? Nobody asks that in Brazil. It's become commonplace. This is a disorganization of the republican pact, a disregard for the law and institutions," says the political scientist.

Exceptions will require tighter adjustment

For Paes Leme, the government has been trying to circumvent the unsustainability of the fiscal rule, which has already become established in the market's and the government's perception. The cost of mandatory expenses already consumes practically the entire federal budget, reducing resources for investments and even for the maintenance of public services.

The percentage of spending on health and education follows minimum levels stipulated by the Constitution and cannot be reduced. Other important expenses, such as social security and social benefits, are tied to the minimum wage, which has seen real growth above inflation—that is, above the limit established by the framework.

For this year, in addition to fiscal maneuvers and tariff hikes, the government should be able to meet its target using non-recurring revenues, such as dividend distributions, the sale of surplus oil barrels, and the auction of pre-salt fields. But the adjustment, according to the economist, will have to be tougher.

"When you undermine the credibility of fiscal rules, things become more difficult for future reforms. Rules will have to be stricter and more direct, as we've already seen with the spending cap. Without this, it will be increasingly necessary to convince the public and market players that there is a genuine pursuit of fiscal sustainability."