By Marcela Ayres
BRASILIA, Nov 11 (Reuters) – Brazil’s government proposed on Wednesday new ways to curb spending as part of a package that Planning Minister Bruno Moretti said was expected to improve the public finances by up to 60 billion reais ($10.8 billion) next year.
Moretti told a congressional hearing that one of the measures would pave the way for additional budget freezes if needed, limiting real spending growth to 2%, below the 2.5% cap set under the current fiscal framework.
Shortly after Moretti spoke, Jaques Wagner, a prominent member of President Luiz Inacio Lula da Silva’s ruling Workers’ Party, formally filed the proposal in the Senate.
Investors are concerned about Brazil’s fiscal outlook, putting pressure on Lula — who was reelected for a fourth term last month — to curb spending and put rising public debt on a more sustainable path.
Markets reacted to the leftist president’s October 25 reelection, sending the Brazilian real lower and lifting long-term interest rates that weighed on equities.
The package is expected to have a fiscal impact of 50 billion to 60 billion reais next year, with larger savings in subsequent years, Moretti said, adding that the measures would provide more tools to curb spending and review tax expenditures.
The government also proposed in the text an across-the-board reduction in tax breaks, he said. If spending freezes are needed, the government could activate a mechanism limiting the use of tax credits to offset tax liabilities, he said.
The measures would provide the public finances with an additional buffer of roughly 50 billion reais, while proposals to cap certain expenditures would bring the total estimated fiscal impact of the package to 60 billion reais, Moretti said.
The minister said the package would safeguard the government’s target of a primary surplus equivalent to 0.5% of GDP next year and accommodate Lula’s campaign spending pledges.
Under Brazil’s fiscal framework, the government can exclude a range of expenditure from the target calculation, amounting to about 65 billion reais in 2027. The target also includes a tolerance band equivalent to 0.25 percentage points of GDP in either direction.
Moretti said the government was “absolutely certain” it would achieve an effective primary surplus of 0.1% of GDP next year, as incorporated in a 2027 budget proposal submitted to Congress in August, which is still awaiting approval.
FURTHER CHANGES
According to Moretti, the package includes a proposal to exclude unexpected oil revenue from the calculation of net current revenue, a move that would effectively limit growth in mandatory health spending.
Under Brazil’s fiscal rules, minimum health spending is linked to a share of net current revenue.
The plan also includes measures to curb excessive public-sector pay, Moretti said.
Highlighting potential resistance among Lula’s supporters, Workers’ Party lawmaker Lindbergh Farias said pushing the package through Congress without broader debate could fracture the governing coalition.
“This is not a rubber stamp,” Farias said. “People here care about making Lula’s government succeed.”
Moretti said part of the fiscal package was intended to organize the federal budget in a way that allows the government to deliver on Lula’s social promises, including larger cash handouts under the Bolsa Familia welfare program.
He said that the administration was not seeking to roll back rights or social benefits and that sound public finances were necessary to preserve them.
(Reporting by Marcela Ayres; Editing by Paul Simao and Aurora Ellis)
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