Brazil’s new fiscal rules to be presented in March, says Haddad

Finance Minister Fernando Haddad on Wednesday announced that the government will present a proposal for a new fiscal framework in March, a month earlier than previously suggested.

A constitutional amendment passed by Congress at the end of last year — that allows the Luiz Inácio Lula da Silva administration to increase spending beyond the constitutionally-mandated spending cap — established that the new government must come up with a proposal to substitute the current fiscal rules by August 31.

Mr. Haddad had initially said that the new framework would be submitted to Congress by the middle of the year. But under increasing pressure from the market, the minister announced that the fiscal plan would be ready before the 2024 budget bill is sent to Congress on April 15.

This earlier schedule was reportedly suggested by Planning Minister Simone Tebet and Industry Minister and Vice President Geraldo Alckmin — two cabinet members picked to placate the financial sector — as it leaves more time to discuss the text in Congress.

Bringing the presentation of the new fiscal rules forward is an attempt by Mr. Haddad to calm the market and show that this administration is taking the fiscal scenario seriously, despite President Lula’s indications to the contrary amid criticisms, for example, of the Central Bank’s monetary policy. 

Nonetheless, during a recent event organized by the investment bank BTG Pactual, Mr. Haddad reiterated that the government “has been studying fiscal rules from around the world” and that “no country adopts a spending cap.” 

Under the current spending cap — in force since 2017 — the government’s expenditure can only increase in line with the inflation rate of the previous year. The rule was created to address a widening fiscal deficit and as an instrument to foster market confidence — but it has since had a number of holes poked into it, especially during the pandemic.