Lula Sanctions Law That Exempts Up to R$5 Billion a Year for Defense from Fiscal Rules

Overview

• With publication in the Diário Oficial, the law takes effect and authorizes, from 2026 to 2031, up to R$5 billion per year outside the spending cap and primary-result target, capped by the smaller of the Defense Novo PAC allocation or R$5 billion, limited to capital expenditures, with related unpaid commitments also excluded.
• In 2025, up to R$3 billion is freed from the cap and target, 60% of the R$5 billion is excluded from the primary goal, and any amount executed in 2025 will be deducted from the 2026 limit.
• Beneficiaries identified by the government rapporteur include Prosub and Sisfron, plus submarines, a shipyard and naval base, the Navy’s nuclear program, patrol vessels, coastal frigates, Army armored capabilities, and Air Force fighters, cargo aircraft and helicopters.
• The measure permits surpluses from the Army, Naval and Air Force funds to be redirected to strategic projects intended to strengthen the national defense industrial base.
• The bill was presented by PL Senate leader Carlos Portinho and advanced quickly without committee review or published impact estimates, while the government signals new revenue measures such as taxing betting and limiting tax compensations to help balance the 2026 budget.