In order to free up funds for social and infrastructure expenditure, President Luiz Inacio Lula da Silva successfully lobbied for new fiscal regulations to be ratified by Brazil’s Congress on Tuesday.
Lula, a seasoned leftist who presided over Brazil’s economic boom in the 2000s and returned to office in January, needed Congress to approve the bill in order for his administration to carry out its promises of increased social programs and a large-scale 1.7 trillion reais ($340 billion) infrastructure investment program unveiled earlier this month.
After an altered version of the measure was approved by the Senate in June, the lower house of Congress, which had already passed a first version of the bill in May, adopted the final language by a vote of 379 to 64.
The strict government expenditure cap implemented in 2016 by the center-right administration of then-President Michel Temer is now abolished by the new regulations.
The Lula administration contended that the expenditure cap had been violated so frequently that it had lost credibility and that the government needed to be permitted to spend more money to meet urgent social needs and restart growth in Latin America’s largest economy.
In order to reduce the deficit, the new regulations permit government expenditure to rise at a rate that is 70% more than that of growth in government receipts.
The legislation “is important, because it indicates greater fiscal discipline, or at least a plan, on the part of the government,” said economist Andre Perfeito of consulting firm Necton.
“But there’s a lot of doubt about the capacity to stick to the plan, because it will depend a lot on capturing tax revenue. There will still be a lot of discussion over whether or not they’ll meet the targets they themselves set,” he told AFP.
Since taking office again in January, Lula has extended and restored a number of well-liked social programs that were first implemented during his first administration (2003–2010), many of which had been cut back by Temer (2016–2018) and the far-right former president Jair Bolsonaro (2019–2022).
But compared to the 77-year-old former metalworker’s previous two years, when soaring Chinese demand for Latin American commodities exports spurred fast expansion, Brazil’s economic picture is far less promising.
