Post by account_disabled on Feb 28, 2024 0:36:56 GMT -5
Brazil's congress gave President Luiz Inácio Lula da Silva the first significant legislative victory of his administration, voting for rules to loosen limits on public spending. The so-called new fiscal framework replaces a stricter cap on spending and forces budgets to increase above the inflation rate. It is the cornerstone of the leftist president's promises of extra money for social welfare and infrastructure in Latin America's largest economy. Representatives of Brasilia's lower house gave final approval Tuesday despite growing investor concerns about government waste and the potential impact on public debt. The passage of the bill is a milestone for Lula, who previously governed from 2003 to 2010 and returned to power in January after his electoral victory over Jair Bolsonaro. He paves the way for a major public works program backed by R$370 billion ($74 billion) of federal funds over four years. “The new framework expands the government's margins for investments and expenditures.
In that sense it is a victory for Lula,” Angelo Coronel, a senator from the centrist Social Democratic Party, told the Financial Times before the vote. The previous spending ceiling, in place since 2017, meant budgets could Job Function Email Database not rise more than the rate of inflation. Investors saw it as a tool to stabilize Brazil's debts. But for Lula and his leftist Workers' Party, it was an obstacle to improving livelihoods in a nation where some 60 million people live in poverty. The new tax regime comes at a time when the outlook for the economy improves. Forecasts for gross domestic product growth for 2023 have been revised upward to an average of 2.3 percent, from 0.8 percent at the beginning of the year, according to a central bank survey of economists, driven in part by the rise of agribusiness. At the same time, Brazil's central bank has begun monetary easing, cutting the benchmark lending rate by half a percentage point to 13.25 percent this month. Under the new fiscal framework, spending will be allowed to increase annually by up to 70 percent of the previous year's increase in government revenue.
Within this, spending must grow annually by a minimum of 0.6 percent above inflation, up to a maximum of 2.5 percent. Recommended Finance Minister Fernando Haddad has pledged to achieve a balanced budget ahead of debt interest payments for next year, aiming to boost revenue with measures such as tariffs on online gambling and clampdowns against tax evasion. However, there is skepticism in the financial sector that the administration can eliminate the budget deficit without raising taxes. Many economists believe the revenue collection targets are too optimistic and criticize the lack of a significant reduction in spending. “The new framework is weaker than the spending limit in terms of its ability to curb the rise in public debt,” said Marcos Casarin, chief Latin America economist at Oxford Economics. “By shifting the focus of spending toward a primary balance target, the new rule gives the government more room to increase spending by allowing authorities to artificially increase the following year's revenue target. This perverse incentive is what weakens the rule.
In that sense it is a victory for Lula,” Angelo Coronel, a senator from the centrist Social Democratic Party, told the Financial Times before the vote. The previous spending ceiling, in place since 2017, meant budgets could Job Function Email Database not rise more than the rate of inflation. Investors saw it as a tool to stabilize Brazil's debts. But for Lula and his leftist Workers' Party, it was an obstacle to improving livelihoods in a nation where some 60 million people live in poverty. The new tax regime comes at a time when the outlook for the economy improves. Forecasts for gross domestic product growth for 2023 have been revised upward to an average of 2.3 percent, from 0.8 percent at the beginning of the year, according to a central bank survey of economists, driven in part by the rise of agribusiness. At the same time, Brazil's central bank has begun monetary easing, cutting the benchmark lending rate by half a percentage point to 13.25 percent this month. Under the new fiscal framework, spending will be allowed to increase annually by up to 70 percent of the previous year's increase in government revenue.
Within this, spending must grow annually by a minimum of 0.6 percent above inflation, up to a maximum of 2.5 percent. Recommended Finance Minister Fernando Haddad has pledged to achieve a balanced budget ahead of debt interest payments for next year, aiming to boost revenue with measures such as tariffs on online gambling and clampdowns against tax evasion. However, there is skepticism in the financial sector that the administration can eliminate the budget deficit without raising taxes. Many economists believe the revenue collection targets are too optimistic and criticize the lack of a significant reduction in spending. “The new framework is weaker than the spending limit in terms of its ability to curb the rise in public debt,” said Marcos Casarin, chief Latin America economist at Oxford Economics. “By shifting the focus of spending toward a primary balance target, the new rule gives the government more room to increase spending by allowing authorities to artificially increase the following year's revenue target. This perverse incentive is what weakens the rule.