Congress pressures with an extra bill of at least R$24 billion and threatens Haddad’s plans – 10/01/2023 – Market

An extra bill of at least R$24 billion in proposals being processed in Congress that increase expenses or reduce revenue could interfere with Minister Fernando Haddad’s (Finance) plans to bring the deficit to zero in 2024.

The economic team intends to raise another R$168.5 billion in revenue next year to achieve this objective — of this amount, around R$70 billion still depends on approval from the Legislature, and another R$98 billion has already been validated, but the estimates are viewed with skepticism by the financial market.

While seeking approval of the remaining measures, political negotiators from the Luiz Inácio Lula da Silva (PT) government are working to try to block the advancement of initiatives that could hinder Haddad’s plans.

The list of proposals includes, on the revenue side, the extension of the payroll tax exemption for 17 sectors (R$9.4 billion) and the exemption of the social security contributions of city halls (from R$7.2 billion to R$9 billion).

The project was approved without resistance from the allied base in the Federal Senate and then underwent changes in the Chamber plenary on August 30.

After the defeat, Haddad said that the progress of the proposal was “a little haphazard” and that the Ministry of Finance is open to discussing some reasonable solution for the municipalities, in an attempt to dehydrate the proposal before the new Senate vote, the last stage which remains pending.

There is also a change in energy transmission tariffs that could reduce the bonus that Copel will pay to the Union for renewing plant concessions by R$1.2 billion. A PDL (draft legislative decree) has already been approved in the Chamber and is being analyzed by one of the Senate committees.

On the expenditure side, the pressure comes from a PEC (proposed amendment to the Constitution) to transfer civil servants from former territories to Union staff, at a cost of up to R$6.3 billion.

The proposal was originally presented in 2018 by senator Randolfe Rodrigues (no party-AP), now government leader in the National Congress. It was at his request that the text was unarchived and, subsequently, approved in the Senate plenary. The government knows that it cannot stop the progress of the PEC, but will try to limit its reach in the Chamber.

Other risks have not yet been fully measured by the government, such as the overturning of the vetoes on the Carf (Administrative Council of Tax Appeals) bill.

The government celebrated the approval of the proposal, which reestablished the Ministry of Finance’s power to cast the tie-breaking vote when judgments on tax conflicts are tied. Without this condition, the government lost billion-dollar disputes.

However, Congress inserted a series of “tortoises” into the Carf project — legislative jargon for a matter unrelated to the main theme of the project under analysis — that could drain revenue. They were vetoed by Lula, but the Legislature can still override the vetoes.

There is also a bill in the Senate that seeks to expand the list of sectors whose companies can enter the simplified taxation regime, Simples Nacional.

The objective is to include companies in the area of ​​support, technical and technological analysis, research and development of nanotechnology. There is no impact estimate.

The government also monitors projects that may have a relevant effect on the accounts, although their approval is a more remote risk at the moment.

A complementary bill is being processed in the Chamber that proposes updating the revenue ceiling for a company to enter Simples Nacional, from the current R$4.8 million to R$8.7 million annually.

In mid-2022, the IRS warned that the proposal could generate a waiver of R$66 billion. Since then, however, the estimate has not been updated. Furthermore, the project stalled at the end of last year, under resistance from the PT and MDB, and there were no new moves in 2023.

In addition to the risk of unwanted surprises, the economic team needs to manage the possibility of frustration in its own adjustment plan.

Haddad sent a wide menu of proposals to the Legislature, which includes the taxation of resources in tax havens (offshores) and exclusive funds in Brazil, used by the “super-rich” to maintain their investments.

The government, however, already knows that the measures must undergo changes in Congress, reducing the potential for revenue. Areas of the government itself have warned of the Ministry of Finance’s excessive optimism with the actions.

The ministry expects to raise R$35.3 billion next year with the taxation of tax benefits granted by states under the ICMS, based on a favorable decision by the STJ (Superior Court of Justice).

Document from Cetad (Center for Tax and Customs Studies) of the Revenue, published by the newspaper Valor Econômico and also obtained by Sheetshows that the body warned the government that the realization of this collection depends “on several future and uncertain events”.

“Caution is recommended for fiscal policy makers when using such estimates, bearing in mind the possibility of frustration of part of the increase in revenue resulting from the measures analyzed”, states the note.

Faced with uncertainty in next year’s fiscal scenario, the government asked the CMO (Mixed Budget Committee), in Congress, to leave the vote on the 2024 LDO (Budget Guidelines Law) project until November.

The LDO provides the basis for formulating the Budget, provides the fiscal target for the year and should have been voted on by July — before the parliamentary recess.

Government leaders in Congress deny that the intention of postponing the vote is to buy time for a possible change in the zero deficit target in 2024. To date, however, not even the LDO’s preliminary report has been voted on in the commission, which gives the government room to to make changes to the project.

The zero deficit target faces skepticism within the government and is the target of criticism from Lula’s allies, such as the president of the PT, deputy Gleisi Hoffmann (PR).

The need to manage this delicate equation between projects of interest and those that could disrupt Haddad’s plans occurs at a time when the Lula government is facing difficulties in forming a loyal base, especially in the Chamber, even after having given spaces to the PP and Republicans in the first echelon of the Executive.

The most recent imbroglio involves the change of leadership at Caixa Econômica Federal.

The president of the Chamber, Arthur Lira (PP-AL), said in an interview with Sheet that there was an agreement for the bank to be handed over behind closed doors, but Lula denied it in a recent public demonstration, giving no guarantees about this.

The impasse is added to the rebellion of groups such as the ruralist and evangelical groups, who protest against decisions of the STF (Supreme Federal Court) which, in their opinion, usurp the powers of the Legislature. For now, only projects of interest to parliamentarians should advance in the Chamber.

Despite the political setbacks, the first semester was positively evaluated by Minister Alexandre Padilha (Institutional Relations), responsible for the political coordination of Palácio do Planalto.

At an XP event, in early September, Haddad also stated that, “up until now, Congress has been quite a partner.” In his speech, he added that congressmen approved all the economic measures that were taken by the government during the first half of the year, and that now the country is “reaping the fruits”.

At the same time, however, the Finance Minister gave the message that, if Congress moves away from bombshells and populist measures, the country could end the year “very well”.

In the interview with Sheet, Lira declared that, even with the government’s difficulties in forming a base, there was no bomb agenda. Additionally, he signaled support for the zero-deficit plan.

“Parliament would continue voting as is [se não tivesse reforma ministerial], [aprovando] matters of interest to the country. We never had a bomb story.”