Brazilian Congress passes important tax laws, boosting the economy

Brazil’s Lower House of Congress has greenlit legislation to strengthen the country’s public finances and alleviate market concerns about President Luiz Inácio Lula da Silva’s spending plans.

The bill was favored with 379 votes to 64 and now heads to President Lula for official endorsement.

With this legislative nod, Lula’s administration can adapt its 2024 budget to the fresh fiscal regulations.

This approval also bolstered the local currency, with the real appreciating 0.8% against the dollar, buoyed by a broader surge due to a drop in Treasury yields.

The Lower House made minor tweaks to the version the Senate approved in June, notably removing a clause that would have provided the government with an additional R$40 billion (US$8.1 billion) in spending authorization.

Yet, in a cooperative gesture, Congressional leaders agreed to let the administration reintegrate this spending via the standard annual budgeting process.

The regulations allow the government to increase spending from 0.6% to 2.5% above the inflation rate, capped at 70% of revenue growth.

This fiscal framework, a top priority for Finance Minister Fernando Haddad and Lula’s economic team, will replace the pre-existing expenditure ceiling.

Initially dubious about the left-leaning government’s fiscal prudence, investors warmly received Haddad’s plan design and early approval this year.

The Lower House retained the Senate’s amendments exempting education funds and the Federal District from the framework.