Flavio Bolsonaro Proposes Debt-Linked Spending Caps for Brazil

Flavio Bolsonaro is drafting a new fiscal framework to replace Brazil's current budget rules as part of his presidential campaign for the October election. The proposed system would link spending caps directly to public debt levels, including a provision to freeze federal spending in real terms if gross government debt exceeds 80% of GDP, a threshold the country has already passed.

Under the draft proposal, spending growth would be limited to 50% of revenue growth when debt is between 75% and 80% of GDP, and 70% when debt falls below 75%. This approach seeks to replace the existing rules under President Luiz Inacio Lula da Silva, which currently cap real spending growth between 0.6% and 2.5% annually.

To increase investor confidence and lower interest rates, the Bolsonaro campaign is also planning spending cuts and a review of tax breaks to achieve a fiscal adjustment of 1.5% of GDP. The campaign stated that its full government platform will be released by August 15.