Brazil’s presidential candidate Senator Flavio Bolsonaro is preparing a new fiscal framework to replace the country’s current budget rules, according to sources familiar with the matter. The proposed framework would impose tighter spending caps as debt rises, potentially reducing real spending growth to zero.

Key Components of the Proposal

The draft proposal, which is still being finalized, would vary spending growth according to public debt levels. The higher the debt burden, the tighter the cap on spending growth. Depending on the final design, the rule could effectively freeze federal spending in real terms in the next administration.

The proposal also includes a primary balance target and a spending cap, similar to the current rules. However, the precise levels have yet to be determined. Additionally, Bolsonaro’s team is preparing spending cuts and a review of tax breaks aimed at delivering a fiscal adjustment equivalent to 1.5% of GDP.

The goal of the proposal is to boost investor confidence, lower long-term interest rates, and generate additional fiscal gains. The framework would replace the current fiscal rules, which cap real spending growth at between 0.6% and 2.5% annually and limit it to no more than 70% of revenue growth.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.