(Bloomberg) -- Brazil’s lower house approved the first part of President Luiz Inacio Lula da Silva’s plan to target 70 billion reais ($11.5 billion) in spending with changes that water down some efforts to address investors’ concerns over the country’s public accounts.
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Lawmakers late Tuesday gave the green light to a proposal that prohibits the expansion of tax benefits if public finances are worsening, limits increased spending for civil servants and allows the government to block the use of public funds earmarked by legislators for local projects.
But in a change that could undermine budget-cutting efforts, lawmakers removed from the original proposal powers granting the government the ability to restrict the use of tax credits by companies even if the country’s finances worsen.
Representatives passed the bill late Tuesday in a 318-149 vote. The proposal still needs to win Senate approval before becoming law.
The government leader in the lower house, Jose Guimaraes, said in an interview that the version approved doesn’t change the fiscal impact of the original proposal. Brazil’s finance ministry is expected to weigh in on the changes on Wednesday.
Investors have been pressing Lula’s government for spending cuts after it boosted outlays to improve living standards. The latest move comes with the real rapidly weakening and health concerns that saw Lula, 79, hospitalized last week with bleeding in his brain.
The bill passed on Tuesday is just one of four proposals facing lawmakers. Another, legislation to change the military pensions system, will be voted on in 2025, according to Guimaraes. The others are expected to be discussed on Wednesday.
Lawmaker Isnaldo Bulhoes, the sponsor of legislation to limit increases in the minimum wage and tighten rules on social benefit payments, told Bloomberg News he will dilute the original proposal over concerns that changes to a social program will hurt poor people.
Plunging Real
The austerity package was expected to cut 70 billion reais from public spending through 2026, but the changes may reduce that amount. The government is seeking to push the austerity plan through Congress before the end of the year.
The government has taken extraordinary measures to stem the currency slide that weakened the real to all-time lows this week. In the latest of a series of moves, the central bank sold over $3 billion in local markets by way of back-to-back auctions, its fourth intervention in three days.