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UPDATE 1-Brazil spending cap to include health, education from 2018 -Meirelles
October 3, 2016 / 5:15 PM / 10 months ago

UPDATE 1-Brazil spending cap to include health, education from 2018 -Meirelles

3 Min Read

(Adds minister comments, reform details and context)

BRASILIA, Oct 3 (Reuters) - A revised draft of a constitutional reform to limit Brazil's public spending to the inflation rate will only include health and education costs starting in 2018, Finance Minister Henrique Meirelles said on Monday.

Otherwise, the new draft kept most of the main points first proposed for the reform, which is due for a vote by a special commission of the lower house on Thursday, Meirelles said.

The proposed index to cap spending, Mereilles added, could be changed 10 years after the measure was implemented. Future administrations would be allowed to make changes.

"We believe that the reform will be approved with those original items that are fundamental," Meirelles told reporters in the capital Brasilia.

He said that as of 2018 the index will be capped at the 12-month inflation rate until June of the previous year. For 2017, the index was set at 7.2 percent, the expected inflation rate for 2016.

The ceiling is one of the main proposals of President Michel Temer, who has vowed to rebalance public accounts in a country still working its way through its worst recession since the Great Depression.

Heavy government spending in recent years fueled inflation, increased debt and cost Brazil its investment grade rating. In addition to the spending cap, Temer has also promised a controversial reform to reduce expensive pension benefits.

The author of the spending draft, Darcisio Perondi, a lawmaker with Temer's party, said that expenditures in health and education could have decreased in 2017 had the government included them in the proposal.

But even amid recession, expenses on health and education remain contentious in a country known for decrepit schools and hospitals that at times lack basic cleaning and medical supplies.

Temer and many economists argue that limiting government spending is crucial for Brazil to reduce a growing debt burden that could top 73 percent of the gross domestic product this year. (Reporting by Alonso Soto; editing by Grant McCool)

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