Brazil's national currency, the Brazilian real, hit an all-time low on Friday morning as spending cuts announced by the government of radical leftist President Luiz Inacio Lula da Silva failed to calm growing market doubts. It fell.
Brazilian Finance Minister Fernando Haddad announced The government's spending cut package this week aims to cut spending by about 70 billion reais ($11.67 billion) over the next two years, including caps on minimum wage growth and caps on high salaries. The purpose is to establish a countermeasure.
The Brazilian government then month It claimed the plan would ultimately save 327 billion reais ($54.5 billion) by 2030, out of significantly increased government spending.
Additionally, the package calls for changes to the tax system that would provide tax exemption for individuals with incomes up to BRL 5,000 (approximately $834), but also those with incomes above 50,000 reais (approximately $8,340). People will have to pay higher taxes. .
Haddad said the measure would have no fiscal impact and would not increase government spending. [reals] The monthly fee will be a little higher. ”
local economists and analysts criticized It deemed the government's spending cuts plan “lower than expected.” the market reacted negatively Following the Finance Minister's announcement, the Brazilian currency reached its lowest level since May 2020 at the time of the Wuhan coronavirus pandemic. By market close on Thursday, the real dropped At a rate of 5.99 per USD 1.
By Friday (the last trading day of November), the real had fallen below the $1/$6 threshold and eventually reached $6. 6.11 per dollar. brazil newspaper Oh Globo reported After Brazil's Senate President Rodrigo Pacheco and Brazil's House of Representatives President Artur Lira publicly commented on the government's fiscal plans, the exchange rate retreated slightly and hovered around 5.99 to the dollar around noon local time. .
Both members reportedly He stressed the importance of spending cuts and the “non-negotiable” importance of fiscal responsibility, and suggested that Congress move quickly on the proposed spending cuts. In contrast, they suggested that the Brazilian government's proposed tax changes would find a “difficult path” through Congress and should be changed. postponed Until 2025.
“The issue of income tax exemption, although everyone wants it, is not on the agenda at the moment and can only be achieved if… [and only if] We have the financial position to do that,” Pacheco said. “If we don't, it won't happen. But this is a discussion for the future and will largely depend on Brazil's ability to grow and create wealth without raising taxes.”
“Other government initiatives involving revenue exemptions will only be undertaken next year after a careful and above all pragmatic analysis of funding sources and effective impact on public finances,” Lira said. emphasized. “One thing at a time. Fiscal responsibility is non-negotiable.”
In response to heavy criticism of the spending cuts, Finance Minister Haddad said: said At an event on Friday morning, he said the controversial proposal was not a “grand finale” and insisted Brazil's government could try to introduce other fiscal measures. He promised that “spend developments will be constantly monitored.”
“This set of actions is not the capstone of what we need to do. In three months, we might be back to spreadsheets discussing the evolution of Social Security or the evolution of BPC. [Continuous Benefit Payment program]. We may need to submit a law to Congress,” Haddad said.
“If there is a problem with the calculations, we will go back to the spreadsheet and submit to Congress and then to the President of the Republic what we think is the right request,” he continued.
Christian K. Caruso is a Venezuelan writer who chronicles life under socialism. You can follow him on Twitter here.
