Brazil’s House Advances Bill That Limits Powers to Cut Spending

Brazil’s lower house of Congress passed in the first round of voting legislation that would limit the government’s ability to cut spending approved by lawmakers.

In a 378 to 48 vote, the lower house advanced a constitutional amendment that would force the federal government to seek congressional approval before it freezes or cuts spending that was originally added to the budget bill by lawmakers. The legislation now goes to a second round of voting in the lower house and must be approved by three-fifths of the Senate in two rounds of voting before it can become law.

The bill would curtail the government’s leeway to meet its fiscal target through spending cuts. At the same time, the legislation would reduce government power to use spending as leverage to gain support among lawmakers, according to Rafael Cortez, political analyst of Tendencias Consultoria.

“The measure is very encouraging for Congress,” Cortez said by phone from Sao Paulo yesterday. “Confidence in lawmakers has been falling and part of the reason is because of the so-called give-and-take: the political bargains and exchange of political support for amendments. To have this approved is to recover credibility among voters.”

The federal government under current laws cannot increase spending approved by Congress even though it can cut or freeze expenditures.

The government this year is targeting a primary budget surplus that excludes interest payments of 111 billion reais ($48 billion), or 2.3 percent of gross domestic product. Finance Minister Guido Mantega told reporters last month the government would reduce expenditures by 10 billion reais to meet its goals.

Lawmakers plan to hold the second round of voting Aug. 27, lower house President Henrique Eduardo Alves told reporters in Brasilia before today’s vote.

Before it's here, it's on the Bloomberg Terminal.