Brazil’s Acting President Michel Temer proposed to legislators on Wednesday spending caps designed to shrink a near-record budget deficit and restore investor confidence in Latin America’s largest economy.
The constitutional amendment would essentially freeze current government expenditures in real, or inflation-adjusted terms, through 2036, according to a statement from the finance ministry. Any increase in revenue stemming from a recovery in economic activity would go to narrow the budget deficit instead of more spending.
Brazil’s budget deficit has ballooned in recent years to around 10 percent of gross domestic product as tax revenue slumped amid a prolonged recession and as the government put “financial skeletons” on the books.
Under the proposal, all expenditures would merely be adjusted by the previous year’s inflation rate, including outlays for health and education. Spending for those two areas is currently adjusted based on tax income.
Temer presented the amendment to leaders of coalition parties in the presidential palace, giving up plans to deliver the proposal in person to Senate President Renan Calheiros, who according to local media now wants the bill to be voted only after a final decision on the impeachment of suspended president Dilma Rousseff.
The amendment requires a two-thirds majority in both houses of Congress.
During his first month in office, Temer won approval for reducing legally-mandated spending requirements, a measure that makes it easier to cut expenditures.
(Bloomberg)