Lula unveils plan to curb spending growth

Résumé détaillé

In bid to calm fiscal worries.

Brazil’s government unveiled a package of measures meant to shore up public finances and ease investor concerns about rising public debt, as President Luiz Inácio Lula da Silva aims to alleviate fiscal fears that have roiled markets since his election victory.

The government on Wednesday submitted legislation that would tighten current fiscal rules and give it more leeway to freeze spending as it seeks to hit budget targets. The overall adjustment is expected to improve primary fiscal results by 50 billion to 60 billion reais ($10.8 billion) in 2027, with a larger impact in subsequent years, Planning Minister Bruno Moretti said during a congressional hearing.

The bill, which Lula’s economic team negotiated with lawmakers, would cap real spending growth at 2% from 2027 onward, down from 2.5%, when compliance with the government’s fiscal target is at risk. It would allow the government to freeze spending even when its primary budget balance is within the lower tolerance band of its target, and cut a range of tax benefits, including exemptions, subsidies and credits.

The proposals are Lula’s initial attempt to demonstrate a willingness to strengthen public finances after his surprise election win rattled investors. Brazil’s currency has tumbled since the October 25 run-off dashed investor hopes that a change in leadership would usher in greater spending restraint and help the central bank bring inflation back toward its 3% target.

But even as a first step, it’s likely to fall short of demands from investors who’ve pushed for the end of real minimum wage increases and other policies aimed at reining in nominal deficits above 9% of gross domestic product and public debt that has risen above 80%.

The government is targeting a primary budget surplus, excluding interest payments, of 0.5% of GDP next year. Lula has pledged to improve those results to a primary surplus of 1.5% in 2030.

Moretti said at the hearing that the measures would give the government “even greater…

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