Government to Slash Spending in Order to Comply with Spending Cap

11/29/2017 - 11h35

In order to comply with the spending cap, next year Brazil will have to reduce government spending, which has reached its worst level since 2009.

Spending will have to be reduced by at least R$ 14 billion (US$ 4.4 billion) when compared to spending in 2017, in other words, 11% less than this year's projected R$ 122 billion (US$ 38 billion).

Cuts may be even bigger - reaching R$ 21.4 billion (US$ 6.7 billion) - if Congress doesn't pass two bills: one with regard to the postponement of a standard of living adjustment for civil servants, the other, a bill that would roll back payroll exemption.

The numbers were released on Tuesday (the 28th) by the National Treasury. Such cuts will be implemented in accordance with the spending cap which was approved last year, limiting increases in public spending to the previous year's inflation rate - which, according to the Treasury's estimates, ought to reach 3%.

However, the government has no control over mandatory spending, which is expected to go up by 6%. Such expenses include retirement pensions (which make up 41% of government spending) and the public payroll.

In order to comply with the spending cap, the federal government will have to turn to other investments and expenses connected to public services.

According to the Chamber of Deputies' Budget and Financial Oversight Committee, an estimated R$ 2.5 billion (US$ 779 million) in spending cuts will take effect next year if Congress manages to approve both bills.

Despite a generally negative outlook, Brazil's economic recovery is beginning to positively impact the primary deficit. In October, revenues surpassed spending by R$ 5.2 billion (US$ 1.6 billion), the first positive result in six months.

Translated by THOMAS MATHEWSON

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