91% rigid budget: why the Brazilian state collects heavily and invests almost nothing

If you were to assume tomorrow the executive leadership of a company that bills R$ 2.5 trillion per year, the first impression would be one of absolute abundance of resources. But upon opening the financial spreadsheet on the first day of work, the chief financial officer would give you a cold warning: 91.4% of the entire operational budget is already contractually committed to fixed expenses that have an automatic real increase clause every single year, and you are prohibited by law from reallocating a single cent of that slice. To keep the buildings functioning, pay the electricity bill, update technology systems, and make all the company's expansion investments, only 8.6% of the budget remains.

This fictional company is the Brazilian Federal Union. The rate of 91.4% of mandatory primary expenditures (mapped in the National Treasury reports, the Senate's Independent Fiscal Institution, and highlighted by the IMF) is the key to understanding one of the greatest paradoxes of national life: why Brazilians pay a rich country tax burden and receive poor country public services and infrastructure.

1. European collection, residual investment

Tax collection is not lacking for the Brazilian State. According to official data from the National Treasury, the general government gross tax burden reached 32.40% of GDP in 2025. This percentage places Brazil well above the Latin American average (around 22% of GDP), above the United States (around 27% of GDP), and practically tied with the average of developed countries in the OECD (34.1% of GDP).

The brutal difference appears when we look at where the money goes after entering the vault. In OECD countries, less than 70% of the budget consists of rigidly mandatory expenditures, and there are almost no automatic links between tax revenues and specific budget lines. This means that at each annual cycle, Parliament and the Executive have more than 30% of the budget free to decide whether the country needs to build more railroads, finance semiconductor laboratories, modernize hospitals, or reinforce security.

In Brazil, we have created over the decades a web of constitutional ties, automatic indexers, and tax subsidies that have turned the public budget into a piece of accounting fiction.

2. The mechanism that crushes infrastructure and science

How does this trap work in practice? Within the 91.4% of mandatory expenses are Social Security (urban, rural, and civil servant), the active civil service payroll, assistance benefits, the salary bonus, unemployment insurance, and linked mandatory transfers.

A large part of these expenses has correction rules that make them grow above inflation automatically, year after year, regardless of whether the economy's productivity has risen or not. At the same time, the fiscal framework establishes a global limit for the growth of total government spending.

Do the simple mathematical math: if the global expenditure ceiling can grow by a maximum of 2.5% above inflation, but the 91.4% of mandatory spending grows by 3.5% or 4.0% above inflation by force of law, who pays the difference? The 8.6% of discretionary expenses.

This is why, every two or three months, we witness news in the newspapers of budget freezes that paralyze highway duplication works, cut scientific research grants, leave cyber defense agencies without resources, or delay the maintenance of universities and airports. Brazilian federal public investment has dropped to historically negligible levels (often below 1% of GDP) not because the country collects little, but because the contracted past devours the budget of the future.

3. Contagion to public debt and corporate interest rates

This budgetary rigidity does not only harm those who depend on an asphalted road. It directly contaminates the financial cost of all private companies in the country.

Since investors know that 91.4% of public spending is rigid and grows on autopilot, any frustration in tax revenue immediately translates into more indebtedness. In August 2026, the General Government Gross Debt reached 82.9% of GDP according to the Central Bank methodology, compared to 93.3% of GDP closed in 2025 and an annual projection of 97.8% of GDP for 2026 in the official IMF Article IV consultation (IMF Country Report No. 26/191). In the 12 months up to August 2026, nominal interest accrued on an accrual basis (which includes the result of currency swap operations) totaled R$ 1.18 trillion (R$ 1,182.2 billion) according to the Central Bank memo dated September 30, 2026.

4. The technical solution: de-index and evaluate results

How did developed countries like the United Kingdom, Canada, Holland, and Australia avoid this gridlock? By adopting two practices that any well-managed company knows:

1. Zero-Based Budgeting and Spending Reviews: no public program or tax subsidy has an acquired eternal right without proving results. At each cycle, it is evaluated with objective data whether the program reduces poverty or increases productivity; if it does not deliver, the resource is redirected.
2. Responsible De-linking and De-indexation: protecting the real purchasing power of the most vulnerable against inflation is essential, but linking the automatic growth of dozens of lines to past revenues or cross-indexers condemns the State to paralysis.

For those leading businesses and engineering teams, Brazil's budget lesson also serves as a corporate warning: beware of recurring fixed costs (underutilized licenses, indexed contracts, and bloated administrative structures) that silently eat away at your company's innovation margin. When more than 90% of your budget merely keeps the past running, you lose the ability to build the future.

Continue deepening: also read Why Brazil's neutral real interest rate is 5% per year (and what that does to companies) and Tax litigation: the over R$ 5 trillion in disputes that stall corporate balance sheets. Also explore the Brazil 2050 Agenda with interactive simulator and the Brasilia Arcade.

References and verifiable readings

• National Treasury (2025-2026). National Treasury Result (RTN) and General Government Gross Tax Burden Bulletin (32.40% of GDP).
• Independent Fiscal Institution (IFI / Federal Senate). Fiscal Monitoring Report: Evolution of Federal Mandatory and Discretionary Expenditures.
• International Monetary Fund (2026). Brazil: 2026 Article IV Consultation (IMF Country Report No. 26/191).