Brazil’s Lula to Unveil Multibillion Spending Plan to Pay for Social Aid

Just like outgoing President Jair Bolsonaro did, Lula has also promised to boost cash transfers for poor families

Luiz Inacio Lula da Silva, Brazil's president-elect, center, poses for a photograph after winning the runoff presidential election in Sao Paulo.
By Daniel Carvalho and Martha Beck
November 07, 2022 | 09:57 AM

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Bloomberg — Brazil’s President-elect Luiz Inacio Lula da Silva will unveil a multibillion-dollar spending plan to pay for his main campaign pledges in the first test of congressional support even before taking power.

Lula returned to Sao Paulo over the weekend, after a short break at a beach in the northeast, to oversee the process. His transition team, led by Vice President-Elect Geraldo Alckmin, is set to hold a news conference on Monday to announce the plan.

Lula needs to move fast to avoid any disruption to social aid payments. Outgoing President Jair Bolsonaro has boosted cash handouts through his Auxilio Brasil program to 600 reais a month, but set aside money for only 400-real handouts in next year’s budget. An additional 50 billion reais ($10 billion) are needed to maintain monthly handouts at the current level.

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But Lula has also promised to boost cash transfers for poor families with children under age 6, exempt more people from income tax and increase the minimum wage to 1,320 reais, above the rate of inflation. In order to cover all of these pledges, he’ll need something between 160 billion to 200 billion reais in additional funds, according to people with knowledge of the matter.

Breaching the Cap

Spending that much money requires approval from congress to break the country’s main fiscal rule -- a constitutional cap that limits growth of public expenditures to the previous year’s inflation rate.

There are two proposals on the table. The first is a constitutional amendment allowing the government to breach the cap. It would need to be approved in 2022 even before Lula takes office.

The alternative would be for Lula to sign a provisional measure as soon as he takes office, allowing the treasury to issue an extraordinary credit that’s not subject to the spending cap rule just to keep the current level of cash handouts. Other campaign promises would be negotiated later.

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A provisional measure would not require immediate congress approval, giving some time for Lula to negotiate with lawmakers. Eventually, the new government will have to negotiate with members of the so-called centrao, an ideologically fluid group of lawmakers who usually support the administration in exchange for funds for their projects.

“A constitutional amendment puts the lower house in charge,” Senator Renan Calheiros, an ally of the president-elect, said in an interview.

Calheiros, who’s an adversary of lower house Speaker Arthur Lira, has been advising Lula to issue a provisional measure instead. Senator-elect Wellington Dias, Lula’s point person in early negotiations with congress, said all alternatives are being discussed, although he favors a change to the constitution.

“Our priority is the constitutional amendment,” he said in a text message on Saturday. “But we also analyze other possibilities presented to us.”

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