BRASILIA (Reuters) – Brazil’s Senate economic affairs committee gave its approval on Wednesday to new fiscal rules proposed by President Luiz Inacio Lula da Silva’s government, marking another step forward for the measure deemed crucial in curbing uncontrolled growth of the public debt.
The committee voted 19-6 to approve the bill, which now awaits a vote in the full Senate. If passed there, the bill would have to return to the lower house to receive final congressional approval.
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 pre-established budget goals are not met, expenditure growth would be restricted to 50% of revenue increases as a penalty.
The bill is seen as essential in signaling a path toward sustainability of public accounts, particularly after Lula successfully secured congressional approval for boosting social expenditures aimed at assisting the poorest people.
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. Aziz has not modified the time frame for adjusting expenditures based on inflation, a point that the Planning Ministry said would help the government draft the 2024 budget bill, due to be presented by August.
The bill establishes 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 period this year, resulting from tax cuts implemented in 2022, there will be a need to cut 32 billion to 40 billion reais ($6.6-8.3 billion) from next year’s budget, according to Planning Minister Simone Tebet.