(Bloomberg) — Brazil’s government will unveil “as many measures as possible” to cut spending this year, Planning and Budget Minister Simone Tebet said Tuesday, continuing his efforts to allay investor fears about the country’s budget prospects to take.
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Tebet gave few details about the plans being considered within President Luiz Inacio Lula da Silva’s government, but said it was weighing more than 30 measures and that a single proposal could deliver savings of 20 billion reais ($3.5 billion).
But while Tebet pledged that the government would meet its budget targets in each of the next three years, Tebet also acknowledged that convincing Lula of the need to rein in spending remains a major challenge.
“The most important thing now is that the measures reach President Lula and that he gives the agreement,” Tebet told reporters in Brasilia after a meeting with Finance Minister Fernando Haddad. “We have a number of debates that are off-limits for President Lula.”
Rising budget concerns have weighed on Brazilian assets as the country’s budget deficit has widened, making the real one of the world’s worst-performing emerging market currencies this year. Lula reignited these fears last week when he called for expanded income tax exemptions for poorer workers, causing the real to fall while swap rates – an indicator of investor sentiment towards monetary policy – soared.
A brief recovery sparked by reports that the government was developing measures to curb spending quickly faded on Tuesday as investors digested the plans and global factors caused a broad weakening in emerging market currencies.
“There seems to be some market skepticism about the austerity agenda,” said Rafael Ihara, chief economist at Meraki Capital.
The economic team led by Tebet and Haddad has put together a laundry list of proposed ways to cut spending, including possible changes to social benefit programs that could lead to more substantial savings than Lula pledged earlier this year, according to people with knowledge of the matter. the situation that requested anonymity to discuss internal matters.
Still, structural reforms to key sources of mandatory spending, such as Brazil’s massive public pension system, remain off the table, Tebet said. She added that a second package of structural measures would follow initial proposals to cut spending, which the government plans to implement after Brazil’s municipal elections at the end of this month.
Tebet declined to say how much the government was targeting with cuts, a sign that it is still far from clear what spending Lula will ultimately want to cut.
Haddad’s current list includes proposals to limit access to benefits for unemployed fishermen and as part of a social program for older Brazilians with disabilities known as BPC. One suggestion is to raise the minimum age for BPC eligibility from 65 to 67, while decoupling benefit growth from inflation, people familiar said.
He has tried to convince Lula by arguing that the government will have to cut spending if it wants to fulfill the president’s campaign promise to exempt workers with salaries of up to 5,000 reais from income taxes, one of the people said.
Haddad has also pushed to limit public sector salaries and reduce spending within the military; proposals that Lula believes the population will probably embrace. But neither would last long enough for Haddad to achieve his goal of eliminating the primary budget deficit, which excludes interest payments.
For example, limiting salaries for civil servants could save about 5 billion reais, according to one of the people. Haddad needs more than 166 billion reais ($29.3 billion) in additional resources to reduce the primary deficit to zero next year, according to the government’s budget law.
–With help from Barbara Nascimento and Andre Loureiro Dias.
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