By Brazil Stock Guide — Economist José Sérgio Gabrielli, who coordinated the Workers’ Party (PT) economic platform and previously served as CEO of state-controlled oil giant Petrobras, has outlined a fiscal consolidation plan for President Luiz Inácio Lula da Silva’s fourth term. The proposal centers on reviewing tax exemptions, recovering outstanding tax debts from major taxpayers, renegotiating government contracts and tightening oversight of congressional budget earmarks.
The plan seeks to increase government revenue and improve spending efficiency without cutting social protections. Gabrielli argues, however, that these measures alone will not be enough to stabilize Brazil’s public debt as long as interest rates remain elevated.
The proposal comes a week after Lula’s reelection, amid sharp financial market turmoil and mounting investor pressure for tighter fiscal policy. It adds to a growing debate over how Brazil can restore fiscal stability without undermining economic growth or the social programs at the heart of Lula’s political agenda.
In an 11-page paper titled Fiscal Policy for Late 2026 and 2027, Gabrielli calls for reviewing tax incentives that fail to deliver demonstrable economic benefits, strengthening the collection of outstanding tax liabilities, streamlining government contracts and redirecting public resources toward investments and programs with higher social returns.
A review of tax expenditures — government revenue forgone through exemptions, deductions and preferential tax treatment — is central to his strategy. According to estimates cited in the paper, federal tax breaks are projected to total approximately R$434.3 billion in 2027. That figure, however, does not represent revenue the government could immediately recover. Gabrielli proposes preserving incentives that demonstrably support employment, innovation and environmental objectives, as well as preferential treatment for essential food products, family farming and small businesses.
On the revenue side, Gabrielli recommends focusing the efforts of Brazil’s Federal Revenue Service and the National Treasury Attorney General’s Office (PGFN) on recovering assessed but unpaid tax liabilities, particularly those involving wealthy taxpayers and large corporations. He also advocates improving tax debt settlement mechanisms while preserving legal certainty.
Another priority would be reviewing government contracts for energy, telecommunications, real estate and standardized procurement as they approach expiration. Gabrielli proposes expanding shared administrative services and assessing spending efficiency on a contract-by-contract basis, without compromising the quality of public services.
Congressional budget earmarks would also face greater scrutiny, with the aim of directing resources toward broader development priorities established by the Ministry of Planning and Budget.
Gabrielli rejects, however, fiscal measures that would erode the purchasing power of the minimum wage, restrict access to Bolsa Família — Brazil’s flagship cash-transfer program — or the Continuous Cash Benefit (BPC), which supports low-income elderly people and people with disabilities. He also opposes weakening constitutionally mandated healthcare and education spending floors or undermining the investment capacity of state-owned enterprises. On pensions, he advocates exploring new funding sources rather than restricting eligibility.
The fundamental problem, Gabrielli argues, is that even an adjustment of this kind would be unlikely to offset the enormous cost of servicing Brazil’s public debt. Under a simplified scenario, he estimates that the country would need a primary budget surplus equivalent to 3.41% of GDP, or approximately R$466 billion, to stabilize its debt ratio, assuming an interest rate of 11.4% and nominal GDP growth of 7%. The calculation is an illustrative exercise, not an official fiscal target.
The contrast is striking when compared with the proposed 2027 federal budget, which sets a primary surplus target of 0.5% of GDP. The gap illustrates how difficult it would be to stabilize Brazil’s debt burden solely by improving the primary fiscal balance, which excludes interest payments.
Gabrielli also calls for closer coordination between fiscal and monetary policy and expresses support for a proposal by economist André Lara Resende, one of the architects of Brazil’s landmark 1994 Real Plan, to establish a broader institutional framework for managing the interaction between the two.
The key unresolved question is how Brazil could achieve sustainably lower interest rates without jeopardizing inflation control or investor confidence. Fiscal credibility, the composition of public debt and inflation expectations also influence the government’s borrowing costs.
Ultimately, Gabrielli’s paper outlines an approach to fiscal consolidation that differs from traditional austerity: recovering revenue, eliminating inefficient tax incentives and improving budget allocation while preserving Lula’s social commitments. For Gabrielli, however, the success of that strategy will also depend on a sustained reduction in the cost of servicing Brazil’s public debt.
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