(Bloomberg) -- Brazil’s congress further weakened the first proposal of President Luiz Inacio Lula da Silva’s austerity package after the real hit a record low on concern the government won’t rein in a surging fiscal deficit.
Following approval late Tuesday of the main text, lawmakers Wednesday voted 444-16 to overturn a measure reinstating a vehicle tax and barred the government from blocking the use of public funds earmarked by legislators for local projects.
The government gave in on these measures so as to safeguard the vote on other measures of the fiscal plan designed to save 70 billion reais ($11.1 billion) in annual spending.
Brazil is running an annual budget gap of 10% — far wider than the ones seen during the leftist president’s first administration. The 79-year-old president’s recent emergency brain surgery came at the worst possible time, further complicating efforts to shore up public accounts.
In a 318-149 vote on Tuesday, lawmakers passed a weaker version of a bill that prohibits the expansion of tax benefits if public finances are worsening, and limits increased spending for civil servants.
The lower house also removed from the original proposal a provision granting the government the power to restrict the use of tax credits by companies even if the country’s finances worsen. The measure must be approved by the Senate to become law.
The government has yet to come up with an estimate of the fiscal impact stemming from the modifications.
Watered-Down
Still pending is a proposal to amend the constitution and two other bills in Lula’s package intended to shore up public accounts. Legislation to change the military pensions system will be voted on in 2025, according to the government leader in the lower house, Jose Guimaraes. The constitutional amendment and the other bill were scheduled for a vote on Wednesday but were postponed until Thursday.
That bill is a watered-down version of the legislation that ensures needy families facing elimination from the so-called continuous payment benefit remain covered.
Representative Isnaldo Bulhoes, the bill’s sponsor, intends to focus the legislation on ensuring that only the elderly and low-income people with disabilities who are eligible under the program receive aid, Bloomberg News reported Tuesday.
The bill is expected to keep the government’s proposal to limit minimum wage increases to within fiscal rules.
‘Speculative Attack’
Market watchers say extraordinary measures by the central bank to stem the currency’s slide are little more than a temporary fix.
The real has been the world’s worst-performing currency over the past four sessions and is down more than 20% against the dollar this year.
The Brazilian central bank called for a $3 billion dollar auction after the currency ended the session 3% weaker.
Finance Minister Fernando Haddad said the Brazilian real may be facing a “speculative attack” amid a selloff sparked by mounting fiscal concerns.
(Updates with postponement of the vote on the constitutional amendment and one of the bills in the eighth paragraph.)
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