Brazil Spending Cap Proposal Passes First Hurdle in Congress

  • Lower house committee endorses key government legislation
  • Floor set to vote on the controversial bill next week

Brazilian President Michel Temer’s proposal to cap government spending and fix the nation’s public finances cleared its first hurdle in Congress on Thursday.

A special lower house committee voted 23 in favor, 7 against the constitutional reform that would essentially freeze government spending in real, or inflation-adjusted, terms for as long as 20 years. Lawmakers also rejected eight amendments put forward by the opposition that would have watered down the proposal.

Finance Minister Henrique Meirelles sought to reassure critics, saying in a TV and radio address that health and education spending will be preserved. "We are creating mechanisms to guarantee that these priority areas will not lose out," he said. "With the control of spending, Brazil will recover credibility."

While the bulk of the parties in Temer’s coalition have pledged to back the measure in a vote on the house floor, some allied legislators are balking at limitations on health-care spending.

But after Thursday’s vote the legislator who sponsored the proposal, Darcisio Perondi, expressed confidence that Congress would approve the measure next week, adding that its supporters were working to ensure there were no surprises.

The constitutional amendment is part of a planned series of government measures to reverse a near-record budget deficit and restore investor confidence. Later this year it intends to present a proposal to increase the retirement age and slow the growth of pension costs. Together, the measures are considered the cornerstone of Temer’s plan to narrow a budget gap of around 10 percent of gross domestic product and jump-start an economy in its second year of recession.

The floor of the lower house is expected to vote on the reform next week. To pass it must win approval by a three-fifths majority in two votes in each house of Congress.

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