Where does our tax money go? Public budgeting explained without legalese

Every Brazilian citizen and entrepreneur feels the burden of taxes on a daily basis: on the supermarket receipt, the electricity bill, the payroll, or the income tax. At the same time, when we look at the average quality of roads, basic sanitation, public safety, or healthcare, the recurring sensation is that we pay taxes of a rich country and receive services of a poor country.

To move away from generic indignation and understand where the bottleneck is, we need to open the black box of the public budget in the same way we audit a company's financial statement: by looking at where revenue comes from, how it is distributed, and which expenses consume the cash even before the year begins.

Database and temporal reference: The indicators cited in this article use official series published up to October 2026 by the National Treasury Secretariat (STN), the Federal Revenue of Brazil (RFB), the Central Bank of Brazil (BCB), and the Independent Fiscal Institution (IFI/Federal Senate).

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1. How much does Brazil collect and where does this money come from?

According to official estimates by the National Treasury Secretariat, Brazil's gross tax burden (adding federal, state, and municipal taxes) hovers around 32.4% of GDP.

This percentage places Brazil well above the Latin American average (close to 21% to 22% of GDP, according to the OECD) and close to the average of developed OECD countries (about 34% of GDP). There are, however, two decisive structural differences:

1. Lower income per capita: 32% of a GDP per capita of about BRL 59.7 thousand generates an absolute value per citizen much lower than 34% of the GDP per capita of countries like Germany or Sweden.
2. Excess taxation on goods and services (consumption): historically, almost half of Brazilian tax collection has been concentrated in indirect taxes on consumption and cumulative production (ICMS, ISS, PIS/Cofins, IPI), which make productive investment more expensive and weigh proportionally heavier on the budgets of lower-income families. The transition of the Consumption Tax Reform (IBS and CBS, established by Constitutional Amendment No. 132/2023 and regulated by Complementary Law No. 214/2025) was designed precisely to reduce this cumulativeness along the transition schedule until 2033.

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2. Who keeps the money? The division between the Union, States, and Municipalities

There is an important difference between who collects the tax at the origin and who effectively keeps the available resource to spend.

_The Union concentrates most of the gross collection (Income Tax, CSLL, social security contributions, PIS/Cofins), but the Constitution determines automatic mandatory transfers to states and municipalities, such as the States Participation Fund (FPE), the Municipalities Participation Fund (FPM), the royalty share, and the Union's complement to Fundeb.

After these constitutional transfers, available revenue is divided in a much more decentralized way:

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3. The great federal bottleneck: why do more than 90% of primary spending come pre-allocated?

When we analyze the Federal Government's primary expenses (all Union expenditures except public debt interest), we find a characteristic that distinguishes Brazil from most economies in the world: extreme budgetary rigidity.

Technical reports from the Independent Fiscal Institution (IFI/Federal Senate) and the National Treasury show that more than 90% of the Union's net primary expenses are mandatory. In other words, these are expenditures determined by the Constitution or permanent laws, which the government cannot simply stop paying without changing legislation.

See how the major blocks of federal primary spending are composed:

1. Social Security Benefits (RGPS/INSS): represent the Union's largest single primary expense (about 45% to 48% of net federal primary spending). They pay retirements, pensions, and allowances for tens of millions of urban and rural insured workers, growing automatically with population aging and the adjustment rules of the social security floor.
2. Union Personnel and Social Charges: remuneration of active civil servants, retirees, and civilian and military pensioners of the Executive, Legislative, Judiciary, Public Prosecutor's Office, and Union Public Defender's Office.
3. Mandatory Welfare and Labor Benefits: Continuous Cash Benefit (BPC/LOAS, paid to low-income elderly individuals and people with disabilities), Unemployment Insurance, and Salary Bonus.
4. Income Transfer Programs and Constitutional Health and Education Floors: mandatory minimum resources for public health actions and services (ASPS), maintenance and development of education (MDE), complementation to Fundeb, and social programs such as Bolsa Família.
5. Discretionary Expenses (less than 10% of primary spending): this is the small slice left to fund the daily operations of ministries, universities, oversight, research grants, and all federal public investments in construction, highways, defense, and equipment.

When someone asks why there is a lack of money to dual a federal highway or modernize laboratories, the arithmetic answer is here: public investment competes for the smallest slice of the budget.

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4. The role of public debt interest: cause and consequence

A topic that frequently generates confusion on social networks is the weight of public debt interest.

According to fiscal data from the Central Bank of Brazil (fiscal note dated 09/30/2026), in the 12 months accumulated up to August 2026, the consolidated public sector registered BRL 1.18 trillion (BRL 1,182.2 billion, or 8.86% of GDP) in nominal interest accrued on an accrual basis (including the result of currency swap operations), which does not entirely equate to immediate cash payment in the same fiscal year.

It is fundamental to separate myth from technical functioning:

• Why is the interest cost so high? Because the country accumulates a high gross debt (separating monthly observation, annual projection, and methodology: 82.9% of GDP by the Central Bank methodology, observed in August 2026, compared to 93.3% of GDP closed in 2025 and an annual projection of 97.8% of GDP for 2026 under the IMF methodology, as per IMF Country Report No. 26/191) combined with high real interest rates, necessary to curb inflation and finance a State that registered recurring primary deficits in the last decade.
• Interest rates do not fall by decree: trying to reduce interest rates by force, without controlling the trajectory of spending and debt, generates distrust, devalues the currency, increases inflation (which acts as a regressive tax on the poorest), and makes long-term interest rates rise even further.
• How to actually reduce the interest bill: by generating consistent primary surpluses, providing predictability to fiscal rules, and reducing the perceived risk in Treasury financing. Each percentage point of sustainable drop in the interest rate saves tens of billions of reais per year in the public budget.

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5. Counterpoints in the tax and spending debate

There are two recurring views in the Brazilian economic debate:

1. The view that social spending does not fit into the budget versus the view that the budget should expand spending: on one hand, economists point out that the automatic indexation of benefits and spending floors causes expenditures to grow faster than GDP; on the other hand, advocates of higher public spending argue that a country with high inequality needs to maintain a broad social protection network and free public services.
2. Tax burden on income and wealth versus consumption: experts converge on the diagnosis that Brazil excessively taxes consumption and payroll, while discussing how to calibrate income taxation without driving away productive investments.

The technical meeting point between these views is the quality and targeting of spending: periodically evaluating each tax subsidy (tax expenditures that exceed 4% of GDP at the federal level, according to the Federal Revenue Service) and each budgetary expense to ensure that the money reaches those who truly need it and generates a return for society.

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6. My view: spending efficiency before any new tax

Anyone who manages the budget of a company or a family knows that, when mandatory expenses grow faster than revenue every year, taking out more loans or charging the client more without correcting the cost structure only postpones the problem.

Brazil already collects nearly a third of everything it produces. Our main fiscal obstacle is not a lack of revenue: it is a rigid budget, full of automatic linkages, opaque subsidies, and low evaluation of return per real invested.

Unfreezing the budget, reviewing inefficient tax expenditures, professionalizing the management of procurement and public works, and reducing the deficit to structurally lower interest rates is the only responsible path so that the taxes paid by citizens return in the form of real infrastructure, security, health, and education.

Continue deepening your knowledge: also read 2041: the year the Brazilian population starts to shrink and Bolsa Familia with an exit door: how to eliminate the fear of formal employment without increasing public spending by 1 real. Also explore the Brazil 2050 Agenda with an interactive simulator and the Brasilia Arcade.

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Official sources and references

• National Treasury Secretariat (STN): General Government Gross Tax Burden Estimation Bulletin, Summary Report on Budgetary Execution (RREO), and the Transparent Treasury portal. Available at: tesourotransparente.gov.br.
• Central Bank of Brazil (BCB): Fiscal Statistics (note published on 09/30/2026, observation in August 2026: gross debt at 82.9% of GDP and nominal interest accrued on an accrual basis at R$ 1,182.2 billion in 12 months). Available at: bcb.gov.br/estatisticas/estatisticasfiscais.
• International Monetary Fund (IMF): 2026 Article IV Consultation with Brazil (IMF Country Report No. 26/191, July 2026: gross debt under the IMF methodology at 93.3% of GDP closed in 2025 and annual projection of 97.8% of GDP for 2026).
• Independent Fiscal Institution (IFI - Federal Senate): Fiscal Monitoring Report (RAF) and series of mandatory and discretionary federal expenses. Available at: senado.leg.br/ifi.
• Federal Revenue Service of Brazil: Tax Expenditure Statement (DGT) and federal collection reports. Available at: gov.br/receitafederal.
• Constitutional Amendment No. 132/2023 and Complementary Law No. 214/2025: Consumption Tax Reform (IBS and CBS). Available at: planalto.gov.br.