Brazil's Bolsonaro says breaking spending cap possible, 'What's the problem?'

BRASILIA (Reuters) - One day after declaring he was committed to fiscal responsibility, Brazil’s President Jair Bolsonaro raised the prospect on Thursday of breaking with a constitutionally-mandated ceiling on government spending.

FILE PHOTO: Brazil's President Jair Bolsonaro arrives for a press statement at the Alvorada Palace in Brasilia, Brazil August 12, 2020. REUTERS/Adriano Machado

“The idea of breaking the ceiling exists. What’s the problem?” the right-wing leader said on a weekly Facebook live webcast to his supporters.

In December 2016, Congress passed a 20-year “ceiling” to slow public spending growth, control a ballooning budget deficit and bring public finances back to long-term health.

The constitutional amendment limits the growth in federal government expenditure to the previous year’s rate of inflation.

But with Brazil’s economy on track for its biggest annual crash ever due to the coronavirus pandemic, the need for fiscal stimulus has never been greater to get the economy moving and save jobs.

Next year’s budget is capped at 1.485 trillion reais ($275 billion), only 31 billion reais more than this year. That would give very little room to maneuver even in normal times.

Despite warnings by Economy Minister Paulo Guedes that failure to roll back this year’s emergency spending will spook investors, Bolsonaro is under pressure from others in his cabinet to keep the fiscal taps running to strengthen the fragile economy.

“The ceiling is the ceiling, the floor climbs each year and we have less and less resources to do anything,” Bolsonaro said.

He said the Infrastructure Ministry had too small a budget and there are projects that need funding in Brazil’s poorer northeast region, where voters could decide his re-election chances in 2022.

Bolsonaro said the emergency spending in the pandemic has already broken the ceiling for this year and he is being asked to spend more.

“We are discussing this because everyone wants it,” he said. “The market has to give us a break too.

Reporting by Anthony Boadle; Editing by Daniel Wallis