Brazil Government Sweetens Deal on Key Spending Cap Proposal

  • Legislation seeks to limit real-term increases in spending
  • Progress of bill to indicate political support for austerity

The administration of President Michel Temer on Tuesday presented to Congress its long-awaited proposal to cap government spending, sweetening the deal by increasing allowances for health.

A special committee in the lower house started discussions on the constitutional amendment and is expected to vote on it by the end of this week. To help make the measure more palatable to legislators, the government proposed increasing minimum health spending in 2017 to 15 percent of net current revenue from 13.2 percent, rather than gradually increasing it through 2020.

Temer’s economic team says the constitutional amendment to limit the growth in public spending to the previous year’s rate of inflation is necessary to reverse a widening budget deficit and restore investor confidence after Brazil’s credit rating was downgraded to junk last year. Supporters of the legislation say it represents a long-term plan for the country’s fiscal imbalances, rather than the one-time budget cuts previous administrations have practiced.

The stakes are high for an administration that inherited from ousted President Dilma Rousseff above-target inflation, a record budget deficit and an economy in its second year of recession.

Leaders of every party in Temer’s coalition have said they’re working to drum up support for the spending cap, which must win approval by a three-fifths majority in two votes in each house of Congress.

Temer says his priority is to approve the measure this year. But the budget battle won’t be won unless Congress also approves cutting soaring costs on pension benefits, Deputy Darcisio Perondi said in the spending cap proposal he presented today.

Government officials say the proposal for pension reform will be presented to Congress this year and approved in the first half of 2017.