Setting the Goal of Eliminating the Primary Deficit by 2024
BRASILIA (Reuters) – Brazil’s Congress completed the approval of the budgetary guidelines bill on Tuesday. The bill includes an important provision allowing for a limited reduction in expenses, even if it means not achieving the fiscal goal. Senators and deputies approved the proposal during a joint session, which generated market concern and sparked intense government debates regarding a potential relaxation of the goal before the Congress vote.
Lula Decides to Maintain the Proposed Zero Fiscal Target
Despite the hesitations expressed by economists due to its heavy reliance on extra revenue, leftist President Lula decided to maintain the proposed zero fiscal target. Finance Minister Fernando Haddad successfully convinced Lula that any spending cuts would be limited, ultimately leading to the decision to uphold the target.
New Fiscal Rules Set by Lula’s Administration
Under the newly approved fiscal rules implemented by President Lula’s administration, annual expenses are required to grow no less than 0.6% and no more than 2.5% above inflation. Additionally, there is a constraint limiting expenses to 70% of revenue growth. These rules work alongside the definition of a target for Brazilian public accounts, which has been established as a zero primary deficit for the year 2024.
Fiscal Target and Spending Rule
The Finance Ministry argued that regardless of its impact on achieving the fiscal target, the minimum increase of 0.6% in expenses should always be met. The recently approved bill ensures that allocations in accordance with the government’s new fiscal framework should not be subject to limitations.
In practical terms, this interpretation is anticipated to result in government budget cuts of approximately 23 billion reais ($4.69 billion) in the year 2024.