Brazil’s federal government is working on a revamped fiscal blueprint aimed at tightening public spending and reducing revenue-draining tax exemptions. Sources close to the negotiations reveal that the plan, which is being shaped in close coordination with congressional leaders, includes trimming tax privileges and placing limits on the growth of federal transfers to the nation's basic education fund. These fiscal revisions are seen as a political and economic alternative to the highly criticized financial transactions tax (IOF) hike rolled out last week.

Though initially expected to be announced on Tuesday, Finance Minister Fernando Haddad delayed the official disclosure of the proposals, noting that further dialogue with party leadership is required before moving forward. The postponement underlines the government’s strategic efforts to build consensus amid a polarized legislative environment, particularly after last week's IOF tax changes sparked disapproval across business sectors and political lines.

The measures at the heart of the package focus sharply on eliminating or reducing tax exemptions, which President Luiz Inácio Lula da Silva’s administration has long argued erode the country’s revenue base. Lula’s economic advisors have repeatedly criticized the scale of tax giveaways — such as payroll tax breaks — that continue without offsetting financial compensations, complicating fiscal planning and public investment capacity.

A particularly sensitive component of the proposal includes a new constitutional amendment aimed at limiting the automatic growth of funds allocated to the Fund for the Development of Basic Education (FUNDEB). This represents a renewed attempt to control the pace of education funding growth — a contentious issue that faced legislative resistance in a previous attempt, which ultimately protected allocations for full-time education programs from major restructuring.

Officials suggest this fiscal reform package is intended not only to rebalance federal finances but also to create the necessary budgetary room to revise or even reverse portions of the unpopular IOF decree. That decree had increased tax rates on various financial operations, including consumer crdit, foreign exchange, and pension-related transactions — moves that alarmed private sector players and lawmakers alike.

If successful, the revised strategy could offer the Lula administration a more sustainable and politically viable pathway to managing Brazil’s fiscal pressures. By targeting entrenched tax exemptions and reassessing spending commitments, especially in education, the government hopes to restore credibility with markets and advance its broader economic reform agenda without deepening political fallout.