Narrow house

Brazil’s lower house gives narrow first-round approval to key budget legislation

SAO PAULO, November 4 (Reuters)A measure that would allow the Brazilian government to increase spending by 92 billion reais ($ 16.5 billion) next year narrowly passed its first hurdle on Thursday, a first vote in the lower house of Congress.

Lawmakers approved the main text of the legislation by 312 votes to 144, narrowly exceeding the 308 votes needed for approval of the proposed constitutional amendment, which will require a second vote in the lower house before going to the Senate.

The legislation is essential to enable President Jair Bolsonaro to increase social spending as he promised ahead of next year’s election by allowing 92 billion reais ($ 16.5 billion) in additional government spending in 2022 .

The proposal, which involves recalculating a constitutional spending cap and staggering government-ordered payments by the court, shaken financial markets and led several senior Treasury officials to resign when it went public last month.

“Brazil has undermined the credibility of all its fiscal rules,” Credit Suisse analysts warned in a note to clients on Thursday, estimating the additional spending would lead Brazil’s gross debt to peak at 93.6% of domestic product gross in 2028 instead of 91.7% below the current spending limit.

The debate in Congress has also sparked debate within parties, as politicians compare the desire for more generous welfare programs to a loss of fiscal credibility and the likely electoral push from Bolsonaro.

Presidential hopeful Ciro Gomes, whose center-left candidacy is third in the 2022 race behind Bolsonaro and former left-wing president Luiz Inacio Lula da Silva, said he was stunned that most lawmakers in his party supported the legislation.

Gomes said he was suspending his presidential candidacy in an attempt to pressure members of his Democratic Labor Party (PDT).

($ 1 = 5.5940 reais)

(Reporting by Eduardo Simoes Additional reporting by Tatiana Bautzer and Gabriel Araujo; Editing by Brad Haynes and Cynthia Osterman)

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