Congress Approves Fuel PLP That Expands Spending and Erodes Fiscal Discipline

Overview

• This week Congress passed the PLP dos Combustíveis, a bill aimed at shielding domestic fuel prices that also added new tax breaks, credits and spending exclusions to the budget.
• Lawmakers embedded two automatic 'gatilhos' that the finance team says will slow mandatory spending growth by about R$10 billion in 2027, but those measures only limit the increase in obligations rather than cut existing outlays.
• Congress inserted specific incentives including a R$1.2 billion ethanol subsidy and about R$1 billion a year for a fertilizer credit program, and it exempted several Defense and health transfers from the fiscal target.
• Valor and other analysts calculate that the exclusions lift the effective primary deficit to roughly R$57.5 billion and that the R$10 billion restraint is tiny compared with an estimated R$170 billion structural correction needed to stabilize debt.
• The package raises legal and political risks because it creates renunciations without clear offsets that conflict with the Fiscal Responsibility Law and prior STF guidance, setting up a contentious budget and possible court review during 2027 negotiations.