BRASILIA (Reuters) -Brazil’s Senate on Wednesday approved fiscal rules proposed by President Luiz Inacio Lula da Silva’s government, considered vital in preventing a surge in public debt.
The project received 57 votes in favor and 17 votes against.
Since the senators modified the text that Brazilian deputies approved, it will require another round of voting in the lower house.
During the plenary vote, the text was amended to allow the government to use an annual inflation estimate to expand its spending limit in the elaboration of the 2024 budget law, which needs to be presented to Congress by August.
The initially approved version in the lower house established a limit on real growth in public spending based on inflation in the 12 months to June of the previous year, plus up to 70% revenue growth.
Due to lower inflation projected for the 12-month period ending in June this year, the Planning Ministry estimated that it would need to cut 32 billion to 40 billion reais ($6.6-8.3 billion) from next year’s budget. Inflation was lower due to tax cuts in 2022 on consumer items such as fuel and phone bills.
Now, the government will be authorized to produce an inflation estimate for the January-December period and use this difference to program expenses in next year’s budget, which will still be subject to the approval of additional credits by Congress later on.
“It will provide comfort so that I don’t ask the ministries to cut expenses,” Planning Minister Simone Tebet told journalists on Wednesday night.
The new fiscal framework is seen as essential in signaling a path toward sustainability of public accounts, particularly after Lula secured congressional approval for boosting social expenditures to assist the poorest people.
Under the proposal, government expenditures would not be allowed to rise by more than 70% of any increase in revenue, with spending growth also limited to between 0.6% and 2.5% per year above inflation.
If budget goals are not met, expenditure growth would be restricted to 50% of revenue increases.
The proposal’s progress in Congress has been praised by S&P, which last week upgraded Brazil’s credit rating outlook.
The sponsor of the bill, Senator Omar Aziz, has expanded a list of exceptions to the cap, including an education fund, a constitutional fund for the Federal District and expenditures related to science and technology.
(Reporting by Ricardo Brito and Maria Carolina Marcello; Editing by Sandra Maler, Chris Reese and Cynthia Osterman and David Gregorio)
