Brazil’s Top Court Gives Lula Edge in Budget Talks With Congress

Martha Beck
·3 min read
1
  • Oops!
    Something went wrong.
    Please try again later.

(Bloomberg) -- Brazil’s top court gave the incoming administration of Luiz Inacio Lula da Silva a substantial edge in current budget negotiations with congress.

Most Read from Bloomberg

In two separate rulings in less than 24 hours, the court gave the president-elect more leverage to negotiate additional spending plans with lawmakers while ensuring the continuity of cash handouts to the poor through the Bolsa Familia social program, one of Lula’s main campaign pledges.

The first decision came from Justice Gilmar Mendes, who granted Sunday night an injunction establishing that minimum income payments to the poor aren’t subject to Brazil’s most important fiscal rule — a spending cap that limits the growth of public expenditures to the inflation rate. He allowed the issuance of extraordinary credits to fund the program, estimated at 80 billion reais ($15 billion) a year.

His ruling comes just as the lower house pushes back on parts of a constitutional amendment that would allow Lula’s administration to boost the spending cap to make room for Bolsa Familia and other campaign pledges. Investors are paying close attention to the negotiations as they worry about the credibility of the new government’s fiscal plans.

‘Secret Budget’

The Supreme Court also ruled unconstitutional the mechanism currently adopted by congress to allocate public funds.

Dubbed as “secret budget” for its lack of transparency, the system allows the budget rapporteur — and by extension the heads of both houses of congress — to distribute billions of dollars of public money to projects sponsored by lawmakers in their home states, often in exchange for votes.

In a vote that lasted several days and ended Monday, most justices considered that the mechanism lacked transparency because it did not make explicit which lawmakers were benefiting from such funds. Their decision on the case, brought forward by an alliance of parties supporting the president-elect, will increase Lula’s control over the budget and give him more power to negotiate the approval of his spending bill with lawmakers.

Lower house Speaker Arhur Lira and party leaders are holding meetings to discuss the scenario after the rulings, which took them by surprise, according to a person with knowledge of the matter, who asked not to be named because the talks are private.

Lira is pushing for the higher expenses to be limited to just one year, the person said, adding that a vote on the bill is still expected for Tuesday.

Negotiations

Yet incoming Finance Minister Fernando Haddad told reporters on Monday that negotiations of the bill will continue as it’s preferable that such spending is authorized by congress.

“As far as I am concerned, the negotiation will continue because it’s important to bet on good politics, on negotiation,” Haddad said.

The bill currently being debated in the lower house is broader, allowing an additional 168 billion reais in additional spending for two years. The money isn’t only to fund social programs, but also to boost public investment.

--With assistance from Daniel Carvalho.

(Uptdates with congress reaction from eighth paragraph)

Most Read from Bloomberg Businessweek

©2022 Bloomberg L.P.