Brazil’s President Jair Bolsonaro said in a TV interview that his government would raise monthly payments under a popular welfare programme to 300 reais from 190 reais (to $60 from $38) starting in December.
If confirmed, the 58 percent increase announced by Bolsonaro in an interview with the RecordTV channel late on Tuesday would be far higher than the one under consideration at the country’s economy ministry and put Brazil’s public finances back under the microscope.
Officials had indicated that the “Bolsa Familia” programme could be raised to 250 reais ($50), but Bolsonaro, whose popularity has plummeted during the coronavirus crisis, said the increase was necessary to compensate for food inflation.
Bolsonaro is preparing for re-election in October 2022.
The Ministry of Economy declined to comment, but a source in the economic team said that the government “spending cap”, widely seen as its main fiscal anchor, will not be under threat.
“It won’t pierce the ceiling, that’s a given. Let’s see what the best thing to do is. The programme is under construction,” the source said.
The rule dictates that public spending cannot rise by more than the previous year’s rate of inflation. Brazil’s budget deficit and debt dynamics have improved in recent months thanks to record tax receipts, a stronger-than-expected economic recovery, and inflation.
The cap was not breached last year or this year because the pandemic-fighting spending splurge was an emergency expenditure and not subject to the usual budget rules.
Current annual inflation of 8 percent gives the government more leeway to increase spending next year without breaching the cap, perhaps as much as 124 billion reais ($25bn) extra, economists at Barclays calculate.
They estimate that a rise in the monthly stipend to 300 reais ($60) and no increase in the number of recipients would cost the government an extra 15 billion reais ($3bn).
If it were to rise 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 ($19bn) from this year’s budget of 35 billion ($7bn).
“The discussion for 2022 is unlikely to be about the risk of breaching the spending cap, but rather how the significant space created by higher inflation will be utilized by the government,” the Barclays economists added.