Brazilian Senator Presents Lula’s Proposal to Exempt Spending Limit for 4 Years

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A controversial proposal to accommodate more spending in Brazil’s president-elect Luiz Inacio Lula da Silva’s 2023 budget was formally presented to Congress on Monday, providing for a shorter welfare exemption but maintaining its annual impact.

Brazilian Senator Marcelo Castro, responsible for next year’s budget, said he presented a constitutional amendment backed by Lula to exempt the “Bolsa Familia” social welfare program from a constitutional spending cap for four years starting in 2023.

Earlier, in November, he had said Lula wanted to permanently exclude the program from the cap known as Brazil’s main fiscal anchor.

The program would cost 175 billion reais ($33 billion) annually, according to Lula’s campaign promises.

But Castro’s bill also removes some public investments from the cap, making room for another 23 billion reais in public spending next year, bringing its total impact to nearly 200 billion reais.

Along with Lula’s latest statements, in which he downplayed fiscal responsibility over social needs, the proposal provoked negative reactions in the market, with economists warning that it could push public debt to record levels and force a change in monetary policy.

Castro acknowledged in a statement that the text will undergo changes in Congress.

“Given the short time we have to approve the proposed reform of the Constitution, and because it is absolutely essential for the governability of the country next year, we will make the necessary adjustments for its approval during its course,” he wrote.

Lula, who arrived in Brasilia on Sunday to negotiate the proposal, campaigned against the constitutional spending cap, but has not yet specified what law he will support to replace it, nor has he indicated who will lead economic policy in his government.

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The leftist leader will take office on January 1.

(1$ = 5.3654 reais)

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