Budget discussions in Brazil could see spending cap breached

In the Brazilian political schedule, August is the time set aside to hammer out the details of the following year’s budget. According to rules on public spending, the Executive branch must send its proposal to Congress before August 31, meaning the last few weeks have been marked by intense disputes — on and off the record — over funding. In Brasilia, cabinet ministers and secretaries are exchanging requests looking for more money for their respective departments or trying to avoid big cuts. But for 2021, most of these calls would fall on deaf ears if the government decides to follow fiscal rules.

The overarching directive is the federal spending cap, which limits the amount of government expenditure per year, restricting any increases to the rate of inflation. While the administration is often close to the ceiling, there is a chance it will not be enough to fulfill this year’s demands. Economy Minister Paulo Guedes, however, is consistently in favor of sticking by the spending rules. “We bought a suit, and we have to fit into it,” he said, during a conference on Tuesday.

His boss, however, had admitted that the government is weighing up whether it will decide to burst through the spending ceiling. “What is the problem?” asked President Jair Bolsonaro last week.

His words were not welcomed by the financial class or Paulo Guedes. Since then, the president has reaffirmed his commitment to public expenditure limits in order to calm the markets. “Fiscal responsibility and respect for the spending cap! Good morning everyone”, tweeted the president on Thursday morning. 

Federal spending: the 2021 dilemma

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