Brazil's Senate approved the base text of a flagship fiscal adjustment bill late Thursday, handing President Luiz Inácio Lula da Silva a legislative victory that still faces hurdles in the lower house. The vote was 45 in favor, 31 against, with five senators not recording a vote — a wider margin than the 40-38 tally on the urgency motion earlier in the session.
The bill, PLP 299/2026, is the centerpiece of the government's plan to improve the 2027 primary result by an estimated R$ 45.1 billion to R$ 56.1 billion (roughly USD 9-11 billion at recent rates). The executive branch had projected a broader R$ 50-60 billion impact. The proposal now returns to the Senate on Tuesday, November 17, for votes on four amendments before advancing to the Chamber of Deputies.
What the bill does
The legislation creates new fiscal triggers within Brazil's spending cap framework, giving the executive tools to contain outlays. Key measures include:
- Tax compensation limits: The federal revenue service may restrict the use of cross-tax credits — where companies offset debts in one tax with credits from another — up to the amount of any contingency freeze.
- Tax benefit cuts: A transversal 20% reduction in various tax incentives, requiring beneficiaries to pay at least 20% of the standard rate. Exemptions include payroll tax relief for certain sectors, tech and semiconductor incentives, and vehicle purchase benefits for people with disabilities or autism spectrum disorder.
- Spending growth brake: When a bimestral report shows the primary result at the lower tolerance band, real primary expenditure growth is capped at 2.0% for that year — below the standard 2.5% ceiling under the fiscal framework. The tighter cap does not permanently reset the baseline.
- Pension compensation cap: Annual federal transfers to states and municipalities for the compensation between the general social security regime (INSS) and civil servant regimes are capped at R$ 3 billion through 2030.
- Lei Kandir transfer slowdown: Annual compensation to states for the ICMS export exemption is temporarily limited to R$ 1 billion through 2030, with the balance spread linearly over 2031-2037.
- Supersalaries: Congress must vote within 120 days on a bill regulating the public-sector pay ceiling and indemnity allowances.
- Gold Rule margin: Up to 40% of the prior year's financial surplus from specific funds may be unlinked to cover constitutional obligations, improving the Gold Rule margin by an estimated R$ 100 billion in 2027 and reducing debt issuance for capital expenses.
Relator Eduardo Braga (MDB-AM) incorporated 21 of 53 floor amendments, raising the official primary result estimate from R$ 54 billion to R$ 56.1 billion. Among the changes, the Federal District Constitutional Fund (FCDF) was shielded from the spending cap, and innovation and science funding from dedicated funds was added to the protected list.
Political fault lines
The vote exposed tensions within Lula's coalition. A left-wing faction of the Workers' Party (PT) opposes the bill, arguing it contradicts the president's reelection platform of protecting social programs. Deputy Lindbergh Farias (PT-RJ), the government's vice-leader in the Chamber, and Psol deputies Erika Hilton (SP) and Sâmia Bonfim (SP) denounced the package as "blackmail by the market and the financial system." On Friday, the PT caucus in the Chamber filed four bills proposing taxes on ultra-high-net-worth individuals and privileged sectors as an alternative revenue path.
The government counters that the adjustment aligns with Lula's campaign pledge of greater spending responsibility. The bill's author is former Senate government leader Jaques Wagner (PT-BA).
In the Senate, the governing coalition expanded its support between the urgency vote and the final tally. Notable crossover votes came from Damares Alves (Republicanos-DF), Plínio Valério (PSDB-AM), Izalci Lucas (PL-DF), and Styvenson Valentim (Podemos-RN). Opposition votes included Flávio Bolsonaro (PL-RJ), Rogério Marinho (PL-RN), Sergio Moro (União Brasil-PR), and Tereza Cristina (PP-MS). Senate President Davi Alcolumbre (União Brasil-AP) did not vote per regimental rules; Ciro Nogueira (PP-PI), Giordano (Podemos-SP), and Jorge Seif (PL-SC) had justified absences, as did Rogério Carvalho (PT-SE).
Next steps
Senate President Alcolumbre and Chamber President Hugo Motta (Republicanos-PB) are coordinating to accelerate the bill's passage. Motta met with Planning Minister Bruno Moretti on Friday for roughly two hours, alongside government leaders Randolfe Rodrigues (PT-AP) and Camilo Santana (PT-CE), and signaled he will convene party leaders to gauge support before a floor vote. The four Senate amendments — including a proposal to strip the R$ 12 billion delay in Lei Kandir transfers and a ban on restricting federal tax credits — will be voted Tuesday. If the base text survives, the Chamber becomes the decisive arena.