Top Stories
Top Stories

UPDATE 1-Brazil's president wants spending cap law changed

(Adds house speaker calling idea "stupid")

BRASILIA, Sept 4 (Reuters) - Brazilian President Jair Bolsonaro has asked his economic team to look into changing the "spending cap" law, a key fiscal rule aimed at reducing the country's public deficit and debt, presidential spokesman Otavio do Rego Barros said on Wednesday.

"The president advocates a change in this law, because if it is not done, the government faces running out of funds in coming years to cover the cost of running the public machine," he said.

The rule limits growth in public spending to the annual inflation rate of the previous year. It is one of the government's three fiscal pillars along with the "golden rule" prohibiting debt issuance to pay for current spending, and its primary deficit target.

Bolsonaro's government has made fixing the public accounts one of its top economic priorities, and so far this year has announced spending freezes of 34 billion reais ($8.3 billion).

But weak economic growth has intensified the squeeze, and government departments face severe funding problems. The 2020 budget unveiled last week showed that public investment, already at a record low, will fall further next year.

"The government will not raise taxes on society to balance the books. So we need to change mandatory expenditure," the president's spokesman said.

Sources have told Reuters, however, that while the economic team agrees mandatory spending should be more flexible, it believes the cap should stay in place.

Lower house speaker Rodrigo Maia rejected Bolsonaro's proposal and said support for the spending cap was "solid" among lawmakers who would have to approve any changes to the rule passed by Congress in 2016 to curb the budget deficit.

"You can't increase spending if you don't reduce expenses. It's stupid. We would have to increase taxes," Maia told reporters. (Reporting by Lisandra Paraguassu and Marcela Ayres Writing by Jamie McGeever Editing by Leslie Adler and Jacqueline Wong)