Purpose and Consequences of the New Brazilian Fiscal Regime

Abstract

The Constitutional Amendment 95, promulgated in December 2016, incorporated the New Tax Regime into the Brazilian legal system. With it, the Union's primary expenditures now have a ceiling that need to observe, over the next twenty years, the parameter of the expenses of 2016, adjusted year by year by inflation. The scope of the fiscal adjustment is to ensure sustainability of the federal public debt, but, at the same time, there is a risk that it will be impossible for the Union, during the period of its validity, to adequately fulfill the services within its competence that are indispensable to society. Target of several criticisms, however, the New Tax Regime provides an incentive for more efficient public management, which now depends on political will. Still, when analyzing the effects of budget constraint prolonged over time, it is assumed that the approved regime is more an economic factoid, for a recovery of market confidence, than a state program to be applied for the term provided for in the Constitutional Amendment.