Two numbers summarize the Brazilian fiscal dilemma. In the scenario where the government meets its targets, the National Treasury projects a gross debt of 88% of GDP in 2035. But if market expectations for interest rates and growth are confirmed, this number rises to 115.4% of GDP. The number is large, but what it reveals is not new. Brazil has an old and familiar relationship with debt. Taking on debt to grow has become, over the decades, something akin to a State policy — undeclared, but consistently practiced.
In the 1970s, it was foreign debt that financed the II PND (Second National Development Plan): abundant state credit, heavy investment in infrastructure and basic inputs, with the bet that growth would foot the bill. When external interest rates exploded with the “Volcker shock” in the early 1980s and the bill arrived, the government converted external debt into internal debt: it bought dollars from exporters by issuing public bonds to pay external creditors. Trapped in a cycle of continuous refinancing, it paid increasingly higher interest rates to roll over this internal debt.
The price came in the form of rising inflation and recession, and the population paid for it for two decades. In 1994, the Real Plan interrupted this cycle with a clear logic: fiscal adjustment as a condition for a strong currency.
Since then, the problem has changed in form, but not in essence. The inflation of the 1980s destroyed income visibly and immediately, unbearable enough to be confronted. Today’s fiscal problem is more patient. It does not appear in prices. It appears in credit that becomes more expensive, in investment that retreats, in growth that disappoints. It is an invisible tax on the productive sector. The mechanism has a technical name: crowding out.
To understand how it works, think of an analogy: the economy is an aquarium. The water inside the tank is domestic savings — all the money available in the country to be invested in companies, machinery, and jobs. The fish are the companies, which need this water to swim, grow, and hire. Now place a giant sponge inside the aquarium. This sponge is the State when it incurs debt beyond what is reasonable: it absorbs society’s water to finance itself, and the fish are left without space.
With what strange naturalness do we live with interest rates that would be lethal in other countries? If the government, the safest debtor in the country, borrows at 14.75%, no financial institution will lend to the private sector for less than that. The cost of credit rises to 20%, 30%, 40%. Expansion does not happen, projects are canceled, jobs are not generated, and national savings, instead of financing technology and innovation, are absorbed to roll over the State’s debt.
The result appears in the statistics: at the end of 2025, Brazilian companies closed the year with R$ 213 billion in debt and corporate defaults at the highest level on record, according to Serasa Experian.
The cost of this fiscal environment does not stop at companies. According to the Consumer Indebtedness and Default Survey (PEIC) by the CNC, in March 2026, 80.4% of Brazilian families were in debt — the highest level in the historical series. Almost 30% had overdue debts, and 12.3% declared they were unable to pay them. And the credit that finances this indebtedness is significantly more expensive for those with less bargaining power: while companies take out free credit at around 24% per year, families pay an average of 57%.
But then what would be the way out? Here lies a paradox that fuels decades of hesitation. Cutting spending abruptly causes recession, compresses demand, drops tax collection, and can worsen the debt trajectory itself. The answer, however, is not in the choice between adjusting or not adjusting — it is in the credibility of the commitment. A government that consistently signals it will respect its fiscal limits reduces the risk premium, brings down interest rates, and makes room for growth without needing a shock.
The fiscal framework exists. The spending cap existed. There is no shortage of rules — what is missing is the commitment to respect them when the political cost appears. Every time the government finds a loophole, an exception, an off-limit expense, it signals to the market that the rule is negotiable. And the market that receives this signal charges the corresponding risk premium, in interest rates, exchange rates, and credit.
As long as the State occupies the space that should belong to private investment, interest rates will be high, credit will be expensive, families will go into debt to consume the basics, and companies will cancel the projects that would generate the jobs of tomorrow.
The question is not whether Brazil can pay the bill. It is how much longer we will postpone it, and who will pay it instead.
]]>The consumption tax reform marks a turning point in the Brazilian fiscal structure, but its early days revealed the size of the “cursed legacy” we will have to overcome. Initiated on January 1, 2026, the transition will establish a new paradigm of taxation based on a dual VAT (CBS + IBS) that will replace our historical “tax madhouse” — the largest tax redesign since redemocratization. However, what we saw in the first week of January was the collision between the modernity of the law and the archaic reality of municipal infrastructure.
In this testing phase, taxpayers issue tax documents highlighting CBS (0.9%) and IBS (0.1%), but with purely symbolic rates. Joint Act No. 01/2025 established that the assessment in 2026 is merely informative, with no tax effects. There is no effective collection or fines for up to four months.
It seemed calm until slowness problems arose in the national service invoice issuance system (NFS-e), along with critical errors in municipal platforms and hundreds of companies paralyzed in their billing. The Federal Revenue Service and the newly created IBS Management Committee (CGIBS) clarified that the problem was not technological, but due to “inadequate configurations by municipalities”.
To comprehend the chaos, it is essential to understand that the reform is not just a change in tax rates. It is the creation of a new federative institutional architecture. Until yesterday, Brazil operated under the logic of tax fiefdoms: each of the 5,570 municipalities legislated and operated its own ISS. The result was a dysfunctional mosaic that drained national productivity.
The new Management Committee (CGIBS), approved with broad support in Congress, was born precisely to centralize this Tower of Babel. With budgetary independence and a parity-based Superior Council (27 states and 27 municipalities), it is an attempt to bring order to the chaos.
When almost 2,000 municipalities tried to simultaneously activate their agreements for the new national NFS-e standard in the week of January 5th, the system exposed our fractures. Many local entities did not even complete basic configurations. The suspension of fines until April 2026 by the Revenue Service was a sensible gesture, signaling that the focus now is educational, not revenue-generating. A clear message: “2026 is a test. Mistakes cost education, not money.”
This gives us valuable clues about the future. If the “rehearsal” phase has already generated friction, the effective transition between 2027 and 2033 will require war-room management. During this period, the old and the new will coexist.
Companies will have to maintain two parallel accounting systems — the old “madhouse” and the new VAT. This will require profound adjustments in ERPs, team retraining, and impeccable tax governance. The cost of compliance will rise temporarily so that, in the future, it can fall structurally.
The tax reform is not just a test for the tax system — it is a maturity test for the productive and public sectors. The ticking clock of 2026 marks the beginning of the end of backwardness. The current mistakes are pedagogical; they show that modernization does not accept improvisation.
The remaining question is not whether the reform works, but who will have the stamina and organization to cross the bridge until 2033. The year 2026 is not just a test. It is a warning.
On Monday morning (13), the world of economics received a clear message: innovation without institutions does not sustain growth. The 2025 Nobel Prize in Economics crowned a trio — Joel Mokyr, Philippe Aghion, and Peter Howitt — for explaining economic growth driven by innovation. This is the second consecutive Nobel Prize centered on economic growth theory. The trio consecrates an agenda that unites history, theory, and public policy — and offers a clear diagnosis for Brazil’s greatest bottleneck: stagnant productivity.
For centuries, humanity’s income remained virtually flat. The so-called “hockey stick graph” shows millennia of stagnation followed by a sudden explosion of wealth. Mokyr dedicated his career to answering what triggered this curve.
His answer is institutional and cultural: the blossoming of an ecosystem of ideas — what he calls the “Republic of Letters” —, a connected, competitive, and intellectually free Europe where scientists and artisans exchanged discoveries and transformed them into technology.
This environment united two types of knowledge: propositional (“knowledge what”, the scientific foundation) and prescriptive (“knowledge how”, practical knowledge). For most of history, these existed in separate worlds. When these worlds met — in English workshops, French laboratories, and Dutch printing presses — the feedback loop between science and practice that sustained the Industrial Revolution was born. Mokyr’s message is simple and powerful: modern wealth is born when knowledge stops being a privilege and becomes a system.
If Mokyr explained why growth began, Aghion and Howitt explained how it is sustained. Their 1992 model, “Growth Through Creative Destruction,” formalized Schumpeter’s insight: economies grow when the new replaces the old — and this occurs in waves, sector by sector.
In the United States, about 10% of companies close and another 10% open each year. Data from 1988 to 2022 show that the sectors with the highest entry and exit of firms and workers are precisely those that increase their productivity the most. In other words, the more movement and renewal, the greater the efficiency gain — it is the famous engine of creative destruction in action.
Aghion and Howitt showed that the growth rate depends on two factors: the intensity of each innovation and the frequency with which they occur across different sectors. Progress does not come from a single revolution, but from thousands of small leaps that add up.
In subsequent works, Aghion and coauthors found an inverted U-shaped relationship between competition and innovation: when a company has too much power, like a monopoly, it has no incentive to innovate. When there is too much competition, companies lack the financial breathing room to invest in R&D. But when a healthy level of competition exists, companies scramble to improve products and processes. This subtle balance — neither monopoly nor price war — depends on good institutions and clear rules of the game.
Brazil is the classic example of a country stuck before the “Aghion-Howitt phase.” We have capital, a market, and good ideas — but we lack the institutional environment that allows the new to defeat the old.
Productivity has grown less than 0.5% per year for two decades. Brazil invested just 1.19% of GDP in R&D in 2023, less than half the OECD average of 2.7%. Furthermore, 60% of companies do not survive past five years in Brazil.
Meanwhile, complex regulations, legal uncertainty, and expensive credit create an ecosystem where the new is costly and the old is protected. The result is predictable: little creative destruction, a lot of status quo.
In Brazil, we still bet on national champions and directed credit, when we should be betting on competition, technical education, and technological diffusion. We need our own “Republic of Letters” — a system of ideas, businesses, and incentives that generates cumulative innovation.
The prize awarded to Mokyr, Aghion, and Howitt does not just celebrate growth theories — it celebrates the rare combination of culture, freedom, and competition that transforms ideas into prosperity. For Brazil, the lesson is clear: without institutions that allow the new to flourish, we will remain rich in ideas and poor in results. Or, in a Schumpeterian version: the future belongs to those who destroy their own past before the market does it for them.
]]>After 20 years of back and forth, the Senate approved Bill (PL) 2159/2021, which creates the country’s General Environmental Licensing Law. The measure promises to unlock infrastructure investments and increase the competitiveness of agribusiness, emerging at a time when the sector already accounts for 23.2% of the national GDP and half of Brazilian exports.
The proposal emerges as a response to the current scenario of legal uncertainty, consolidating over 27,000 rules—currently scattered across state and federal regulations—into a single framework. The text avoids overlapping jurisdictions and eliminates administrative hurdles without reducing the effective protection of these areas.
Currently, the process follows a three-phase model (Preliminary, Installation, and Operating Licenses) and requires studies such as the EIA/RIMA (Environmental Impact Assessment/Report) for major impact projects, but lacks clear deadlines or integration among the responsible agencies. Each state or municipality defines its own rules, and the processing is mostly physical, generating overlapping requirements, legal uncertainty, and a lack of predictability.
The new framework arises to address these flaws: it unifies the scattered regulations, maintains the three-phase model, but creates simplified procedures, establishes maximum deadlines (between 3 and 10 months), digitizes workflows through Sinima, and regulates situations where the license can be waived — making licensing more agile, transparent, and secure, without giving up environmental safeguards.
According to data from the Environmental Licensing Panel in Brazil (WayCarbon), the national average for obtaining a license is 208 days. Considering only the full process (Preliminary License to Operating License), this average rises to 631 days — one year and nine months. Many projects are paralyzed due to the lack of a clear rule, creating legal uncertainty for investors.
Embrapa also recognizes the problem: studies by the institution indicate that delays in licensing lead to setbacks of 2 to 5 years in the implementation of aquaculture projects. During this period, producers are unable to operate legally and access rural credit, as they do not have complete environmental documentation.
Environmental organizations, such as the Climate Observatory, criticize the bill, pointing out that it relaxes licensing and could aggravate the environmental crisis in Brazil. For them, the possibility of automatic licenses by self-declaration represents a setback.
However, experts point out that it is possible to reconcile efficiency and protection. Jurists Marcelo B. Dantas and Gabriela Giacomolli highlight positive points of the bill that should be preserved: setting maximum deadlines for environmental agencies, better definition of required studies, creation of new license modalities, and increased penalties for environmental crimes.
Besides simplifying procedures for low-impact activities, the bill also toughens inspection in more serious cases, maintaining the mandatory full licensing with EIA/RIMA for high-impact enterprises and sensitive areas such as conservation units and indigenous lands. The project foresees sampling audits, data digitization for traceability, and allows the suspension or revocation of licenses obtained through false statements.
Agribusiness is one of the most solid economic pillars of Brazil, responsible for sustaining a large part of the trade balance. The approval of the new regulatory framework arrives at an opportune moment, promising to unlock infrastructure investments and strengthen the sector’s global competitiveness. More than ever, it is essential to emphasize that Brazil can and should be an example of how sustainability and agricultural productivity go hand in hand.
Have you noticed smaller packaging for the same price? The Broad National Consumer Price Index (IPCA) closed 2024 at 4.83%, breaching the ceiling of the target once again. Expectations for the IPCA remained at 5.57% for 2025, above the 4.50% target ceiling. Within this context, shrinkflation emerges — a term that mixes “shrink” and “inflation”. Although silent, this practice reduces your purchasing power daily.
Shrinkflation is the business practice of discreetly decreasing the weight or volume of products without proportionally reducing the price, which amounts to a hidden inflationary increase. A product that previously weighed 200g might be reduced to 180g while maintaining or even raising its original price. This strategy, common after the pandemic, became an effective way for companies to pass on rising costs to less attentive consumers. When input and logistics costs soar, companies face three options: pass on the price, cut margins, or reduce the size. The third seems the “least painful”, because the label takes advantage of the distracted eye.
A study by Janssen and Kasinger (2025) examined ten years of supermarket receipts in the US and found that, although only 2% of products decreased in size, this happens five times more often than packaging increases. On average, the portion per package shrank by 8%, but the price paid per gram or milliliter rose by 12%. Because most customers do not notice the change, sales do not drop. It is an increase that slips past the distracted eye.
International experience shows that price transparency, rather than draconian punishments, is the preferred path.
France — Since July 2024, every product that shrinks must carry, for six months, a yellow warning with the expression shrinkflation and display the previous price per unit of measurement.
European Union — Since Directive 98/6/EC, the bloc has made it mandatory to simultaneously show the total price and the price per kilogram or liter, to facilitate comparison between brands.
Australia — The Unit Pricing Code, under competition law, forces supermarkets to display the value per 100g or 100mL on shelves and e-commerce.
United Kingdom — With rising prices in 2023, the Competition and Markets Authority concluded that clear and legible unit pricing helps more than standardizing package sizes.
In all successful experiences, the common thread is transparency: when the label shows the price per kilo/liter and a visible warning of a weight change, the consumer compares in seconds and punishes the manufacturer at the checkout, migrating to the neighboring brand.
Bill (PL) 1017/2025 foresees a fine of up to 10% of gross revenue and even the revocation of business licenses. At first glance, it sounds protective; in practice, it can generate adverse effects. Businesses that operate with lower margins would have to bear the cost of packaging redesign and new tracking systems — for many, the way out would simply be to increase prices or close their doors.
Furthermore, rigid requirements make the operation more expensive and favor large chains, which dilute costs at scale. The result can be less competition — exactly the environment where shrinkflation thrives.
Shrinkflation is a transparency test for markets and public policies. Smaller packages for the same price dilute purchasing power and blur statistics. Banning it by force, however, risks turning a problem of centimeters into an increase in Reais. Brazil should follow the logic that worked abroad: illuminate the shelf, not wield the club of billionaire fines.
]]>As we know, public services in Brazil leave much to be desired. Despite having a high tax burden for an emerging country, the public sector in Brazil is unable to provide quality services. To make matters worse, the high level of government spending exacerbates a perverse macroeconomic imbalance of inflation and high interest rates.
Given this scenario, it is past time for the country to adopt a modernization agenda for the Brazilian State in order to achieve efficiency gains. We are one of the least productive countries in the world. Over the last 40 years, the average productivity growth rate of the Brazilian worker has been one of the lowest in the world.
One way to provide productivity gains, in addition to reforming our education policies, involves reformulating and adopting good incentives in public services — which, besides spending an absurd amount on payroll, drag down our productivity statistics.
According to the World Bank, Brazil spends about 13.35% of its GDP on active public sector personnel. We have a high primary expenditure (39.2% of GDP), a number well above the levels seen in the emerging world. Among the 64 nations for which the IMF releases this data, Brazil ranks sixth highest for this type of burden — close to Norway and Iceland, and ahead of Sweden. Colombia, Chile, and Peru, with realities closer to Brazil’s, keep their personnel expenditures around 6 percentage points of GDP.
Besides being double what the country invests in education, personnel spending in Brazil is 3.5 times the amount the country spends on healthcare (3.9% of GDP). Not to mention that the public budget is increasingly inflexible: 93% of budgetary expenses are earmarked, with 65% going towards salaries and pensions.
As if that weren’t enough, we also have the wage premium, which compares public and private sector workers with the same level of education, gender, skin color, age, and sector of activity. Even taking all these variables into account, a federal public employee earns almost 100% more than their equally qualified private sector counterparts.
Besides having an expensive public machinery, the existing incentives in the public service are flawed, negatively impacting civil servant productivity and delivering less efficient services. Many federal civil servants enter public service with high salaries, reaching the top of their careers in a short time. Progression occurs based on length of service or obtaining certification — and not based on delivering results.
We need an Administrative Reform that, in addition to bringing greater rationality to personnel spending, creates better incentives for civil servants, helping to unlock the low productivity of the public sector and improving efficiency gains overall.
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