The government and Congress’ disregard for the financial crisis was evident in the 2026 Budget Guidelines Ordinance (LDO) approved this week. It is as if the laws of gravity that govern Brasilia’s economy had been abolished, as if the political class lived in a parallel universe, where expenses could skyrocket, money grew like weeds in the grass of Praca dos Tres Podres, and taxpayers were always available to cover everything, at no cost to the country’s growth and development.
Members of Congress from the executive branch secured a commitment to pay R$26.5 billion out of R$40.8 billion expected in parliamentary amendments by June – compared to no more than R$9.2 billion in recent years. They also adjusted the party’s already $1 billion fund by up to 2.5% above inflation. They even obtained approval to donate goods even during the electoral period, through protocol considerations only.
- deal: Congress approves LDO for 65% of amendments before elections and gives approval to government to target minimum target in 2026 and aid Correos
In return, the government also got what it wanted: permission to spend up to R$10 billion, outside the rules of the fiscal framework, in addition to the loss target stipulated for state-owned enterprises (R$6.8 billion). It received approval from the legislature, instead of the primary surplus of R$34.3 billion stipulated in the LDO, with the aim of achieving a zero surplus. This is correct. The goal became just a fantasy.
This mandate was necessary to meet a requirement created by the Federal Court of Audit (TCU) last week, after overturning a September decision that stated the obvious: the government needs to aim at the center of the bullseye, not the floor. The 0.25% of GDP band around the target is there to provide a margin of safety to accommodate unforeseen events, and cannot be used for planning. Or I couldn’t. Now, with a mandate from Parliament and approval from TCU, this is possible.
In the parallel world of Brasilia, Planalto relies on the complacency of the USSR and the wastefulness of Congress, which every now and then creates exceptions to exclude expenditures from the fiscal rules. After spending on the military and spending by state-owned enterprises in the Growth Acceleration Program (PAC), the Senate made another exception for temporary spending on health, education and international loans.
- Pre-election adjustments and more flexible tax limits: Understand what will change in the 2026 budget
The LDO completed the kindness with another R$10 billion to state-owned enterprises. Even this space may not be enough to cover the huge expected losses of the Post Office. From January to September, the total negative result amounted to R$6.1 billion, almost three times what was recorded in 2024. The loss is expected to reach R$10 billion this year. After the failure of an attempt to borrow R$20 billion from the market to clean up the company, the idea is now for the treasury itself to pump resources into the state-owned company, hence the need to ease the budget. Thanks to a legal chemistry approved by a presidential decree, the government will be able to do this without formally turning Correos into a state-owned company dependent on the treasury, although the situation is similar.
The government is wasting time and taxpayer money in its irrational attempt to keep the Postal Service under state control. For those who live in the real world, it is clear that a company needs a strong shake-up in order to be privatized. However, in Brasilia’s parallel universe, it is always possible to make a new turn to pretend that expenses can rise further – until the day of the inevitable and devastating decline.