Temer Government wins first Congressional battle with bill to cap public spending

A Congressional committee in the Brazilian Lower House approved on Thursday a constitutional amendment that would limit public spending to the rate of inflation for 20 years, handing President Temer an initial victory in his plan to plug a widening deficit.

The parliamentary committee voted 23-7 to pass the proposal, which will be put to a vote in the full chamber early next week. Its approval requires two votes in the plenary of the lower house and two more in the Senate, needing a three-fifths majority in each chamber.

Temer's government is seeking to press ahead with unpopular reforms in the wake of last weekend's municipal elections.

The amendment is designed to curb a budget deficit equivalent to 10% of GDP. Hopes for its passage have made Brazilian assets among the best performing in the world this year despite an economy submerged in a two-year recession.

In a concession to ease its passage, the government announced on Monday that a cap on health and education expenditure would not go into effect until 2018, rather than next year. Leftist opponents have demanded more time to debate a measure they say violates the spirit of Brazil's 1988 Constitution, which made generous provisions for social spending. They plan to seek a court injunction to block the amendment.

Temer said this week that public debt, which ended last year at a level equivalent to two-thirds of economic output, would reach 100% of GDP by 2024 without the measure.

The conclusion of municipal elections in most cities across Brazil last weekend allows Temer's ruling Brazilian Democratic Movement Party (PMDB) and its coalition allies a freer hand to back the measure. A small number of cities face a second-round runoff this month.

Source: Mercopress Agency