SAO PAULO, Jan 31 (Reuters) - Brazil’s government will cancel between 5 billion and 8 billion reais ($1.6 billion-$2.5 billion) of public spending for 2018, to comply with a constitutional amendment that caps expenditure growth, a government source told Reuters.
Under a bill put forward by President Michel Temer, government spending cannot increase by more than the rate of inflation in a given year.
This will force the government to cut spending in a revised budget proposal to be published by the end of the week, the source from the economic cabinet said.
Policymakers often freeze public spending at this time of the year as part of a regular budget review, but cancelling spending would be more drastic as it cannot be reversed.
Additionally, the government could also freeze around 2 billion reais worth of government spending as part of the revised budget plan, the source said.
The bill will keep an estimate of 12 billion reais worth of revenue from the privatization of power utility Centrais Elétricas Brasileiras SA, the source said, but will not allow those funds to be spent for now.
The government has struggled to gather lawmaker support for the privatization plan among lawmakers. (Reporting by Patricia Duarte; Writing by Bruno Federowski; Editing by Bernadette Baum)