Brazil’s Congress passes bill to raise spending cap for welfare program

6:47 am Thursday, December 22nd, 2022

By Maria Carolina Marcello

BRASILIA (Reuters) -Brazil’s Congress late on Wednesday gave its final approval to a constitutional amendment increasing the government spending cap to maintain welfare payouts to poor families next year, a centerpiece campaign pledge by the country’s incoming president.

The green light represents a major victory for leftist President-elect Luiz Inacio Lula da Silva, overcoming a first challenge ahead of his Jan. 1 inauguration despite market jitters over his plans to boost spending.

The bill backed by Lula’s transition team is set to raise Brazil’s spending ceiling by 145 billion reais ($28 billion) for one year to fund monthly payments of 600 reais under the “Bolsa Familia” welfare program.

It will also allow an extra payment for families with children up to six years old and exclude an additional 23 billion reais of windfall revenue on public investment from the spending cap.

The lower house of Congress on Wednesday voted 331 against 163 to pass the bill, which then headed to Senate, where lawmakers approved it in a 63-11 vote.

The amendment will “ensure assistance to those most in need,” Senate President Rodrigo Pacheco said after the vote, adding that Congress was guided by “what is fundamental for the country.”

Markets initially had a negative reaction to the higher spending proposal, but cooled down after Congress members agreed to cut the life span of the bill to only one year from a previously planned two-year period.

Lula’s team had originally proposed waiving 175 billion reais in welfare funding from the spending cap for each of the four years of his term, but the Senate had already scaled this back earlier this month.

“Our team viewed the change as positive, but noted that the fiscal impact was still quite high,” broker XP Investimentos said in a research note.

Brazil’s benchmark stock index Bovespa closed up 0.53% on Wednesday, its third positive session in a row, while the Brazilian real, was roughly flat.

Incoming Finance Minister Fernando Haddad told reporters that the comfortable victory in the lower house served as a good test of the future government’s political support in Congress.

He also said he intended to send to Congress a new fiscal framework to replace the current spending cap in the first half of 2023. According to the future minister, once approved, the new set of rules would help organize public finances.

(Reporting by Maria Carolina Marcello; Writing by Peter Frontini and Gabriel Araujo; Editing by Stephen Coates, Alistair Bell and Tomasz Janowski)