Lula Plans to Boost Brazil Spending 9.7% Next Year

Aug 31, 2007 - Brazilian President Luiz Inacio Lula da Silva plans to boost spending 9.7 percent in 2008 as faster economic growth boosts tax revenue, allowing the government to spend more on public works and social programs.

Lula proposed total spending of 389.4 billion reais ($198.9 billion) next year, compared with 354.9 billion reais authorized for this year, the Budget Ministry said today in a statement distributed in Brasilia. The proposal forecasts that revenue will rise 11 percent to 565.6 billion reais.

"The government is taking advantage of a good situation in the economy to boost spending," said Alexandre Lintz, senior economist for Latin America at BNP Paribas in Sao Paulo. "The spending increase doesn't represent a risk to the fiscal situation because the government only spends money after making sure the revenue met the target."

Lula plans to boost spending as record-low interest rates and rising demand for Brazilian commodity exports are expected to fuel economic growth and boost tax revenue. The budget proposal, based on market estimates, assumes that Brazil's economy will grow 5 percent in 2008 from an expected 4.7 percent in 2007, and that annual inflation next year will quicken to 4 percent from 3.68 percent in 2007.

"The government's first goal with this bill was to maintain fiscal policies and austerity," Budget Minister Paulo Bernardo said at a news conference in Brasilia. "The second was to consolidate the president's second-term goals of emphasizing policies in the social area and building up and improving infrastructure."

Projections

The budget deficit will drop to the equivalent of 1.1 percent of gross domestic product next year from an expected 2007 deficit of 2.2 percent, as revenue growth outpaces spending growth, the statement said. The government in April forecast that the 2008 budget deficit would fall to 1.5 percent of GDP.

"Government spending next year will be stable as a percentage of GDP and that is good news," Lintz said.

The government plans to boost social spending 17 percent next year to 73 billion reais and spending on public works, including roads and ports, 12 percent to 23 billion reais. It also plans to raise the country's minimum wage 7.2 percent to 407.33 reais from 380 reais today, the statement said. The government increased the minimum wage 8.6 percent this year.