A good week for the economy, but not so much for the Lula government – 07/08/2023 – Market

The economic superweek in the Chamber of Deputies comes to an end with the advancement of the broadest Tax Reform in almost six decades and the project that gives back to the Ministry of Finance the power to preserve debt collections when there is a tie in the judgments of the CARF (Administrative Council of Appeals tax).

Had it not been for the postponement of the new fiscal framework to August, the government of Luiz Inácio Lula da Silva (PT) would have completed the trinity of proposals that are at the top of Minister Fernando Haddad’s (Finance) priority agenda.

Even with this temporary setback, the balance is undoubtedly very positive for the economy and for the country, which took an important step towards a more rational tax system and the recovery of essential revenues for the rebalancing of public accounts.

A quick reading of the result could indicate a victorious government in its negotiations, but that is not the behind-the-scenes assessment. Between the lines, Congress gave a tough message to the Executive, which serves as a warning to conduct the articulations from August, after the legislative recess.

By inverting the agenda and putting the Tax Reform ahead of the Carf project and the new framework, considered more urgent by the economic team, the mayor, Arthur Lira (PP-AL) showed that it is not the government’s agenda that will prevail in the legislature.

Centrão played with the fact that the Executive had sent the Carf project to be processed on an urgent basis, which blocked the agenda of the Chamber and prevented the advancement of the fiscal framework, but did not stop the PEC (proposed amendment to the Constitution) of the Reform —an agenda that Lira embraced in search of a kind of quality seal for her management.

The regimental minutiae used to justify the movement are just a smokescreen for the mayor’s true intention, which was to give a demonstration of strength before the Planalto Palace at a time when his political group is increasing pressure for positions in the top echelon of government. , release of amendments and a share of earnings from newly approved projects.

The Treasury has already won important victories and certainly celebrates the approval of the Tax Reform, but it was never a preference of Haddad or his assistants to line up the three proposals in the same week. It was already foreseen that, in the end, this combination would turn against the government itself, which was forced to give in on the proposals and open the safe of amendments to obtain some progress in the House.

The focus of the economic team was the Carf project, essential to close the 2024 Budget accounts, which have a hole of about R$ 150 billion to be filled on the revenue side.

In the estimates presented in January, the Treasury expected a permanent impact of BRL 20 billion annually, in addition to an extraordinary inflow of at least BRL 50 billion in 2023 with a program to renegotiate taxpayers’ debts.

The numbers turned the Carf into a “winning ticket” in the eyes of parliamentarians and a valuable bargaining tool in the hands of the Centrão, which used the repeated postponements of the vote to increase the bill —with the government and with private actors.

According to different interlocutors, the rapporteur, Deputy Beto Pereira (PSDB-MS), spent two whole days without answering calls from the Minister of Finance, giving priority to agendas with lobbyists and representatives of different interest groups. The posture irritated Haddad’s assistants and led Lira to intervene to restore dialogue around the text.

Amid the comings and goings, the project, initially scheduled for Monday (3), was only approved on Friday (7). The legal text, which originally had only 2 pages, gained weight and reached 15 pages. Technicians are still going through the fine-tooth comb to track the tortoises and calculate the damage.

In the Tax Reform, the government also had to accept the expansion of exceptions for different sectors and activities, but was rewarded with the loose approval of the text, with an expressive score of 382 votes to 118.

The advancement of strategic economic agendas, however, should not deceive the government about the size of its base or the reconquest of governability. The government depends on Lira to approve the projects it needs. The mayor knows this and charges a high price for the dominance he exercises over the plenary.

So far, the Lula government has accepted paying for this, not entirely free of some upheavals. But the more you know how to reconcile proposals of common interest of the Executive and the Centrão, the lower the cost and the wear and tear to approve them.