Brazil’s Senate approves government’s new fiscal rules

BRASILIA (Reuters) – Brazil’s Senate on Wednesday approved fiscal rules proposed by President Luiz Inacio Lula da Silva’s government, considered vital in preventing a surge in public debt.

The project received 57 votes in favor and 17 votes against.

Since the senators modified the text that Brazilian deputies approved, it will require another round of voting in the lower house.

The bill is seen as essential in signaling a path toward sustainability of public accounts, particularly after Lula secured congressional approval for boosting social expenditures to assist the poorest people.

Under the proposal, government expenditures would not be allowed to rise by more than 70% of any increase in revenue, with spending growth also limited to between 0.6% and 2.5% per year above inflation.

If budget goals are not met, expenditure growth would be restricted to 50% of revenue increases.

The proposal’s progress in Congress has been praised by S&P, which last week upgraded Brazil’s credit rating outlook.

The sponsor of the bill, Senator Omar Aziz, has expanded a list of exceptions to the cap, including an education fund, a constitutional fund for the Federal District and expenditures related to science and technology.

Aziz has not modified the timeframe for adjusting expenditures based on inflation, a point that the Planning Ministry said would help the government draft the 2024 budget bill, due to be presented by August.

The Brazilian government needs to cut some 32 billion to 40 billion reais ($6.6 billion-$8.3 billion) from next year’s budget, according to Planning Minister Simone Tebet.

(Reporting by Ricardo Brito and Maria Carolina Marcello; Editing by Sandra Maler, Chris Reese and Cynthia Osterman)

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