Beyond inflation: Brazil’s new spending rules cause debate among analysts
Congress recently approved a new fiscal framework, receiving a cautiously optimistic response. Brazil’s new spending rules cause debate among analysts.
Many believe the rules are too flexible, diminishing the government’s drive to cut expenses.
This new plan replaces the 2016 spending cap by Michel Temer’s administration, which tied government spending increases to inflation.
The new framework stipulates that spending will perpetually rise above inflation, ranging from a minimum of 0.6% to a maximum of 2.5%.
Remarkably, this new cap is flexible; a significant increase in tax revenue doesn’t necessitate using the surplus for public debt repayment, as mandated by the previous rule.
The government can now allocate the surplus for investments.
This policy shift aims to prevent spending control from adversely affecting public services and works during economic downturns.
Nonetheless, analysts view this flexibility as undermining the goal of curbing public spending growth.
Additionally, the framework mandates that discretionary expenses, excluding salaries and other fixed costs, must constitute at least 75% of the budgeted amount.
The government must also achieve the primary result outlined in the Budgetary Guidelines Law (LDO) and the Budget, starting in 2024, with a 0.25 percentage point margin above or below the GDP.
Despite the 2024 target of zero deficit or surplus, Brazil’s new spending rules cause debate among analysts.
The National Treasury’s Prisma Fiscal report indicates a median projected deficit of R$84.23 (US$17) billion for 2024, equating to 0.75% of the anticipated GDP of R$11.26 trillion.
Analysts perceive the new fiscal framework’s flexibility as a compromise on limiting public spending growth despite its design to safeguard public services and works during economic slumps.
This skepticism is underscored by Prisma Fiscal’s expected debt-to-GDP ratio, which rose from 79% in July to 79.15% in August.
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This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error · Editorial responsibility: Matthias Camenzind, Editor-in-Chief