If confirmed, the 58% increase in aid announced by Brazilian President Jair Bolsonaro in a television interview on Tuesday evening would be far greater than that envisaged by the country’s economy ministry.
Brazilian President Jair Bolsonaro said in a TV interview that his government will increase monthly payments under a popular social assistance program to 300 reais against 190 reais (to $ 60 from $ 38) starting in December.
If confirmed, the 58% increase announced by Bolsonaro in an interview with RecordTV on Tuesday evening would be much higher than that envisaged at the country’s Ministry of the Economy and put Brazil’s public finances under the microscope.
Officials had indicated that the ‘Bolsa Familia’ program could be increased to 250 reais ($ 50), but Bolsonaro, whose popularity plummeted during the coronavirus crisis, said the increase was needed to offset food inflation. .
Bolsonaro is preparing for re-election in October 2022.
The Economy Ministry declined to comment, but a source on the economics team said the government’s “spending cap”, widely seen as its main fiscal anchor, would not be threatened.
“He won’t pierce the ceiling, that’s obvious. Let’s see what is the best thing to do. The program is under construction, ”the source said.
The rule states that government spending cannot increase more than the previous year’s inflation rate. Brazil’s budget deficit and debt dynamics have improved in recent months thanks to record tax revenues, a stronger-than-expected economic recovery and inflation.
The cap was not breached last year or this year because the pandemic spending madness was an emergency expense and not subject to regular budget rules.
The current annual inflation of 8% gives the government more leeway to increase spending next year without exceeding the cap, possibly up to an additional 124 billion reais ($ 25 billion), according to economists’ calculations by Barclays.
They estimate that an increase in the monthly allowance to 300 reais ($ 60) and no increase in the number of beneficiaries would cost the government an additional 15 billion reais ($ 3 billion).
If it were to increase to 300 reais for 27 million people instead of 14 million now, as some reports have said Bolsonaro wants, the annual cost would almost triple to 97 billion reais ($ 19 billion) on the this year’s budget of 35 billion ($ 7 billion). ).
“The discussion for 2022 is unlikely to focus on the risk of exceeding the spending cap, but rather on how the important space created by higher inflation will be used by the government,” added Barclays economists. .