Brazil’s Congress has approved new government-backed measures aimed at controlling public spending and slowing the country’s growing debt burden.
The measures, proposed by the Finance and Planning ministries, were added to an unrelated bill as investors increasingly question President Luiz Inacio Lula da Silva’s commitment to carrying out a stronger fiscal adjustment.
The lower house and Senate approved the proposal on Wednesday, with the bill now awaiting presidential approval.
Finance Minister Dario Durigan said the measures are expected to generate around 10 billion reais (US$1.94 billion) in savings next year by limiting the growth of mandatory government spending.
Mandatory expenditure has become a major concern for Lula’s administration, particularly as public debt continues to rise. Lula is also seeking re-election in October, although his campaign platform for the next four years does not explicitly set out plans for a more ambitious fiscal adjustment.
Under the new proposal, mandatory spending created through ordinary legislation would be capped in the following financial year if the government’s revenue and expenditure report projects a primary deficit before the annual budget is submitted.
Brazil’s latest fiscal report projected a primary deficit of 52 billion reais this year, meaning the new restrictions are expected to affect next year’s budget.
Programmes that are not protected by constitutional rules would therefore be prevented from growing faster than the real spending limit under Lula’s fiscal framework, which allows annual increases of between 0.6% and 2.5%.
The government also plans to exclude oil revenue transferred to the Social Fund when calculating mandatory health spending. This would prevent unexpected increases in oil revenue from automatically raising certain expenditures linked to net current revenue.
The spending restrictions would remain in place until the government records an annual primary surplus.
Durigan said the government used the bill as an opportunity to introduce permanent measures aimed at keeping mandatory spending under control, as concerns over Brazil’s fiscal outlook continue to grow.
