By Marcela Ayres and Maria Carolina Marcello
BRASILIA, Aug 12 (Reuters) – The Brazilian Congress approved on Wednesday spending-control mechanisms proposed by the government in an effort to rein in the country’s debt.
The finance and planning ministries included the proposal in an unrelated bill as investors question President Luiz Inacio Lula da Silva’s willingness to pursue a more forceful fiscal adjustment amid rapidly rising public debt.
The country’s lower house and the Senate approved the text on Wednesday, with the bill heading to presidential sanction.
The proposed changes are expected to generate about 10 billion reais ($1.94 billion) in savings next year by slowing mandatory spending growth, Finance Minister Dario Durigan told journalists in Brasilia.
Mandatory spending is widely viewed as a key vulnerability of Lula’s leftist administration. Reuters had reported the government proposal earlier in the day, citing sources.
Lula, who is seeking reelection in October, does not explicitly address the need for a more ambitious fiscal adjustment in his campaign platform for the next four years.
Under the proposal, if the government’s revenue and spending report preceding the annual budget bill projects a primary deficit, spending mandates created by ordinary legislation would be capped in the following fiscal year.
Because the latest fiscal report projected a 52 billion reais primary deficit this year, the measures are expected to apply to next year’s budget.
That means programs tied to non-constitutional rules could not grow faster than the real spending limit under Lula’s fiscal framework, which allows annual increases of 0.6% to 2.5%.
The government also proposes excluding oil revenue transferred to the Social Fund from the calculation of mandatory health spending, preventing windfall oil revenue from automatically boosting some expenditures tied to net current revenue.
The triggers would remain in effect until the government posts an annual primary surplus.
The government inserted the changes into a bill that approves offsetting tax breaks adopted to cushion the impact of higher oil prices with additional government revenue generated by the commodity’s rally.
“We took the opportunity to introduce permanent measures that help us in controlling mandatory spending,” Durigan said.
($1 = 5.1618 reais)
($1 = 5.1907 reais)
(Reporting by Marcela Ayres and Maria Carolina Marcello in Brasilia; Editing by Rod Nickel and Chris Reese)
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