New Law Limits Size of Brazil’s Primary Surplus

If the Brazilian economy grows less than is expected in 2006, the government will have to loosen the fiscal reins. This measure would induce the government to invest more, fueling the economy.

This is the new requirement included in this year’s Budget Guidelines Law (LDO, Lei de Diretrizes Orçamentárias), which determines general rules for next year’s budget.


“It is a fundamental innovation in the budget,” believes the reporter of the bill, federal deputy Gilmar Machado (PT – Minas Gerais state).


Next year’s growth target is for the Gross Domestic Product (GDP) – the total wealth produced by the country – to expand 4.5%. The primary surplus for 2006 is set at 4.25% of the GDP, which means that, disregarding interest payments, the government’s revenues have to exceed its expenditures by an amount equivalent to 4.25% of the GDP.


“If the country’s GDP growth is greater than 4.5%, we can put more aside to make interest payments. If we grow less than 4.5%, we will be able to use part of this surplus for investments,” Machado explains.


Yesterday, August 24, in a joint session, the National Congress approved a substitute bill for the LDO for 2006. The LDO was supposed to have been approved by June 30, but the original bill received 2,545 amendments, and the Joint Budget Commission decided to draft a substitute bill.


The debates extended over two months, and the only way to end them was through a grand accord arranged last week among lawmakers from all the parties.


The law must still be ratified by the President. Any presidential vetos will be considered by the Congress in a joint session scheduled for next Tuesday, August 31, the date when next year’s Budgetary Law is supposed to be presented to the Congress.


According to Machado, the federal government has already been using the text of the substitute LDO in preparing the 2006 budget, so few alterations will be necessary.


Agência Brasil

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