Senate decides whether Lula can make new expenditures outside the fiscal rules

The Federal Senate will vote this Wednesday (15) on Complementary Bill (PLP) 163/2025, which removes temporary spending on health and education from the fiscal framework. The proposal also provides for the exclusion of expenses financed with international loan resources — and their respective counterparts — from the fiscal rules.

The bill was approved by the Chamber of Deputies, as a matter of urgency, on September 24, with 296 votes in favor, 145 against, and two abstentions. If it passes the Senate without amendments, it will proceed to presidential signature.

Authored by Congressman Isnaldo Bulhões Jr. (MDB-AL), the project is based on Law 15,164/2025, which regulates the Pre-Salt Social Fund and authorized the allocation of an additional 5% of the fund's resources to education and health programs for five financial years.

"If these expenses are included in that [spending] limit, the availability of resources will be more limited," the congressman stated. According to Bulhões, the change could free up approximately R$1.5 billion per year for use in both areas. "In absolute terms, it's a significant amount of resources, capable of financing several programs," he added.

Regarding the exclusion of primary expenses financed with international loans and their counterparts, Bulhões stated that the measure prevents delays in the execution of works and investments.

“These operations no longer take place because the framework prevents these resources from being transformed into roads, ports, and bridges,” said the parliamentarian.

Credibility of the framework in check

According to Insper professor Fernando Schüller, Congress is once again poised to approve an exception to the fiscal framework. The new exception, however, comes as no surprise.

"The result is to further reduce the credibility of the fiscal rules defined by the government itself. The country is accumulating a huge fiscal problem that will only be addressed after next year's elections, unfortunately," he stated.

According to Rafael Bastos, an expert at FGV Ibre (Brazilian Institute of Economics), the framework's objective is to establish parameters for public debt growth. "If debt can grow without being controlled by the fiscal framework, then the rule loses credibility," he noted.

Expenses continue to impact public debt

If the Senate approves PLP 163/2025, even without being included in the spending limit and the primary result, temporary expenses on health and education will continue to impact public debt.

According to a study by the Independent Fiscal Institution (IFI), linked to the Federal Senate, the Union's public debt is expected to close at 77.6% of GDP this year and reach 82.4% in 2026.

Rafael Bastos states that this has been a trend. "It's a common occurrence for the government to try to draft a budget that ends up being completely flawed," he says. On the other hand, he believes the government has been discussing the framework, which is a positive development.

The government has already violated the fiscal framework on 10 occasions.

On Tuesday morning (14), Senator Rogério Marinho (PL-RN) mentioned the “demoralization” of the fiscal framework during a hearing with the Minister of Finance, Fernando Haddad, at the Senate’s Economic Affairs Committee (CAE).

According to Marinho, the Lula government has preferred to increase revenue rather than adjust public spending.

"Either we make adjustments to the accounts to try to bring the state's revenues into line, or we increase revenues to fund social programs. It's clear which choice the government made. But the government presents a fiscal framework and then circumvents it ten times," said the senator.

Examples of expenses taken from the fiscal rule

Fernando Schüller points out that the government has already worked outside the fiscal rules with court-ordered debts, flood relief in the south, firefighting, INSS fraud, and now with the compensation of American tariffs.

In August of this year, according to calculations by Gazeta do Povo , spending outside the fiscal rule reached R$337 billion .

Expenses excluded from the rule include:

• Precatórios, which would be counted again in 2026, but were again removed by Congress — totaling R$92.3 billion in 2023 and R$48.6 billion this year;
  
• The Transition PEC, which released an extra R$145 billion for the Lula government in January 2023;
  
• Expenses related to the disaster in Rio Grande do Sul, in May 2024, amounting to R$29 billion;
  
• R$1.3 billion to restore the budget ceiling for the Judiciary and the National Council of the Public Prosecutor's Office (CNMP) in 2024;
  
• Investments and operating expenses of state-owned companies, which also fell outside the target — R$1.9 billion in 2024 and R$3.7 billion this year.

Project favors government accounts

The approval of PLP 163/2025 eases the federal government's budget. According to Isnaldo Bulhões, annual contributions to the Pre-Salt Social Fund are around R$30 billion, generating an expected additional R$1.5 billion in revenue per year for education and healthcare.

By excluding these resources from both the primary expenditure limits and the calculation of the fiscal target, the project establishes this amount as extraordinary revenue for these areas.

Furthermore, the proposal also removes these expenses from the constitutional floors for education and health — which make up the discretionary spending group.

Discretionary expenditures—non-mandatory expenditures—are the portion of the budget used to finance social programs and investments. They are also the portion subject to potential cuts to meet the fiscal target. In the 2025 Budget, these expenditures total approximately R$219 billion, and are expected to reach R$237 billion in 2026.

The fall of MP 1,303 hinders a surplus in 2026

With the repeal of Provisional Measure 1,303, which expired last week, the government is expected to face difficulties in achieving the 0.25% GDP surplus projected for 2026, equivalent to R$34.3 billion. Revenue estimates for the Provisional Measure vary, but were as high as R$17 billion for next year.

If the government can't find a way to recover the lost revenue, it will have to make changes or cuts to its budget. Thus, the additional resources for health and education, released by PLP 163/2025, could help balance the books or reduce the cuts.

Government studies alternatives to balance accounts

Now, the government is exploring new ways to offset the loss of revenue. Among the possibilities are raising rates on betting companies and fintechs, cutting parliamentary amendments, limiting the granting of tax credits, and even further increases in the IOF (Tax on Financial Transactions).

During a Senate hearing, Haddad said he will meet with President Lula and other ministers this Wednesday (15) to define the path forward. The minister acknowledged that the 2026 budget included revenue from MP 1,303 and that, without it, it will be necessary to “evaluate alternatives to meet fiscal targets.”