Brazil to hold spending increase at or below GDP growth: paper

RIO DE JANEIRO (Reuters) - Brazil’s federal government plans to hold spending increases to a level equal to or less than growth in the country’s gross domestic product, the Folha de S. Paulo newspaper reported on Sunday, citing the new planning minister.

Brazilian budget growth has outstripped GDP growth for most of the last decade. But with the economy now slowing, President Dilma Rousseff, who began a second term on Thursday, has promised to rein in spending and revive investor confidence.

Announcing the plans in an interview with Folha, Planning Minister Nelson Barbosa said: “Turning this into a formal rule involves a series of discussions that we are going to want to have, but we have no formal definition because each budget outlay has its own dynamic.”

Barbosa is one of several new ministers drafted into the government to help boost its credibility with investors after years of surging public spending, inflation and increased state intervention in the economy.

Brazil, the world’s seventh-largest country by GDP, is expected to grow by just 0.14 percent in 2014 and by 0.55 percent in 2015, according to a Dec. 26 central bank survey, which collected the median forecasts of about 100 financial institutions.

That marks a sharp decline from the 7.5 percent seen in 2010, the highest rate of growth for 24 years. Growth stood at 2.5 percent in 2013.

Slowing growth has eroded tax revenues and driven up debt levels, raising concern about the sustainability of Brazil’s public finances.

However, tensions between reform-minded new ministers such as Barbosa and some elements within Rousseff’s Workers’ Party may already be surfacing.

On Saturday, Barbosa retracted comments that the government planned to change the formula used to adjust Brazil’s minimum wage. Adjusting the formula is seen as a key way to control non-discretionary “entitlement” spending.

Reporting by Jeb Blount; Editing by Gareth Jones