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UPDATE 2-Brazil 2021 budget proposal sees $43 bln deficit, no new social welfare programs

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BRASILIA, Aug 31 (Reuters) - Brazil’s government said on Monday it expects to post a budget deficit of 233.6 billion reais ($43 billion) next year, another huge fiscal shortfall as it battles to repair public accounts blown apart by the COVID-19 pandemic.

In its 2021 budget proposal sent to congress, the government said it expects the economy to grow by 3.2% next year, recovering from this year’s fall that is shaping up to be the steepest on record.

Speaking to reporters via videolink, special secretary to the economy ministry Waldery Rodrigues said emergency spending triggered by the COVID-19 pandemic will not be extended next year, and there will be no new social welfare program in the 2021 budget.

This cuts to the heart of a rift between President Jair Bolsonaro and Economy Minister Paulo Guedes. Bolsonaro last week rejected Guedes’ proposal for a new cash welfare program called ‘Renda Brasil’ because it would involve cutting other programs.

“The bill raises lots of questions. It is well known that Bolsonaro has good reasons to gain from last week’s noise about ‘Renda Brasil’, and more economists and analysts are commenting on the spending ceiling uncertainty,” said Jose Francisco Goncalves, chief economist at Banco Fator in Sao Paulo.

Rodrigues noted that the current ‘Bolsa Familia’ scheme for millions of Brazil’s poorest people will be expanded by 5 billion reais to 35 billion reais.

The government’s spending cap limiting growth in expenditure to the rate of inflation will be 1.486 trillion reais, according to the bill.

Rodrigues insisted that the “super anchor” of fiscal policy will not be tinkered with, and that any increase in real spending would be met with spending cuts elsewhere.

The targeted budget deficit of 233.6 billion reais excluding interest payments will equate to 3.0% of gross domestic product, the government said, and is up from its previous goal of 149.6 billion announced in April.

This year’s wider public sector deficit of over 800 billion reais, or 11.3% of GDP, will be revised on Tuesday, Rodrigues said.

Next year will be the government’s eighth annual deficit in a row. Treasury Secretary Bruno Funchal said that based on the spending cap and market projections for GDP and interest rates, the government will still be posting primary deficits in 2026 and 2027.

The 2021 budget projects net government revenues of 1.28 trillion reais, down 97.3 billion reais form April’s forecast, and total expenditure of 1.52 trillion reais.

$1 = 5.47 reais Reporting by Jamie McGeever; Editing by Cynthia Osterman and Richard Pullin

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