Brazil's Senate approves spending cap constitutional amendment

The Senate approved on 13 December 2016 a constitutional amendment that will limit the growth of the federal budget to the previous year’s rate of inflation for the next 20 years, effecting a spending freeze at the federal level (Folha de S. Paulo, Globo G1). Healthcare and education, the two areas that receive largest shares (which are fixed by federal law) of federal spending after social security (Previdência), are also subject to the spending cap. The amendment passed with 53 votes in favor, less than expected but more than the necessary 49 (three-fifths majority of the 81 senators). The measure had previously been approved by the Chamber of Deputies and in a first-round, preliminary vote in the Senate. The measure now moves to President Michel Temer to be signed. However, the government has noted the amendment will only be effective if the social security reform bill currently contested in Congress is passed as well.

The amendment has been met with controversy: while the current administration sees the measure as critical to controlling spending and bringing Brazil back into good international financial standing, many see the measure as regressive or simply “kicking the can down the road.” Polling by Datafolha on 13 December 2016 showed that 60 percent of Brazilians are against the amendment, and protests erupted throughout the country surrounding the vote (Folha de S. Paulo). The austerity measure intends to reign in government spending so that public debt level does not continue to increase (it is currently 70 percent of GDP, much higher than the 45 percent average of countries at the same state of development as Brazil). The amendment provides optionality for the sitting President to revise the baseline of the measures in its tenth year, which would be 2025. However, opponents of the amendment in both Congress and the constituency believe it will block necessary investment in education and infrastructure, while others find it mathematically improbable that the federal government will be able to adhere to the measure’s provisions for more than a few years.