Brazil Congress Close to Deliver a Diluted Spending Cut Plan
Bloomberg3 days
Brazil Congress Approves Most of Fiscal Package
Above: Rodrigo Pacheco, Brazil's senate president, center, during a confirmation vote for Gabriel Galipolo, monetary policy director of Brazil's central bank, not pictured, at the National Congress in Brasilia, Brazil, on Oct. 8, 2024. Image copyright: Ton Molina/Bloomberg/Contributor via Getty Images
The Facts
Lawmakers from both Brazil's lower house and Senate have approved most of the bills that are part of a government-proposed fiscal package aiming to cut billions in spending.
This includes a constitutional amendment altering allowance rules for public-sector salaries and a bill that limits real increases to the minimum wage and establishes changes to cash-transfer programs.
The Spin
Narrative A
Brazil's economic outlook is dire, and this weakened package does little to ease fiscal concerns. Since taking office last year, Luiz Inácio Lula da Silva has relied on deficits to accommodate higher public expenditure — and failed to lift revenues. Furthermore, fiscal challenges could be aggravated due to monetary tensions.
Narrative B
The approval of most of the fiscal package represents an essential step toward stabilizing public finances and restoring market confidence in Brazil. Some may fear that congressional changes would water down the austerity plan, but that's not the case as potential savings are likely to fall by just R$1B, less than $170M.