Duel between Lula and Lira puts governance at risk

While the dispute continues between president Luiz Inácio Lula da Silva (PT) and the mayor, Arthur Lira (PP-AL), to define who will have the final word in the expected governance agreement between Planalto and Centrão, essential for guarantee the success of the PT’s current mandate, the deadlines for the definition run out and the pressures reach alarming levels.

The government needs to guarantee resources to contain the advance of the gap in its accounts and is still plunged into total uncertainty in relation to the 2024 federal budget. On the 31st, programs already planned, such as the new edition of the Growth Acceleration Program (PAC), aimed at infrastructure works, are at risk. The framework is an essential requirement for drawing up the Union’s Budget for next year.

In the midst of agendas in the country and abroad, Lula delays the decision on which ministries will accommodate the names already chosen by Centrão: deputies André Fufuca (PP-MA) and Sílvio Costa Filho (Republicans-PE). While he is stretching the rope, the president is making it impossible for his economic team to fulfill its promise to bring the deficit to zero next year. Lula warned that he will conclude the agreement, but emphasizes that he maintains control of appointments and positions, reaffirming his central position.

However, according to analysts consulted by the People’s Gazette, if he insists on testing the patience of the deputies, he may suffer more severe consequences, including the need to give up even more space in the government and to release resources more quickly, such as the vote on the tax reform – which required the government to release a record amount of parliamentary amendments given the lack of a broad government base in the Chamber. On the other hand, Lula is afraid to respond to demands immediately and convey the idea that he has submitted to Lira’s rule.

Delay in closing an agreement may lead the government to pay more

João Henrique Hummel Vieira, director of Action Relations Government, points out that, although Congress resumed activities in August, the month passes without providing security as to the solution of pending issues.

“The crucial moment of decision is serious for a government that, despite having finally started, still does not have all the necessary definitions to align its future consistently with its plans”, he observed.

Doubts surrounding the fiscal scenario are evident and tend to grow while there is not even a meeting between party leaders in the Chamber to deliberate on deadlines and procedures related to changes in the Senate framework.

“All this indicates that the vote on this issue will only take place when the government grants the expected counterparts, strengthening collaboration with Congress through positions in ministries, state companies and banks. As the impasse continues, the price of the concessions to be given by the government tends to rise”, underlined Vieira.

To further complicate the situation, the previous report on the Budgetary Guidelines Law (LDO), presented by Deputy Danilo Forte (União Brasil-CE), does not include the rules of the framework. This suggests that the government’s ambitions will come up against budget constraints. For this reason, the next few weeks will be filled with anxiety amidst Lula’s travels.

Behind the scenes, a sign of tensions is evidenced by the estimate of the Ministry of Finance itself, which forecasts a deficit of R$ 136.2 billion at the end of 2023, equivalent to 1.3% of the Gross Domestic Product (GDP). This represents a one-third increase in relation to the deficit of R$107.6 billion (1% of GDP) projected in March. The increase has already resulted in the need to cut non-mandatory funds in social programs and public projects, including areas such as basic education, due to the continuity of spending cap rules.

Framework relief still needs to be negotiated

The 2023 Budget forecast a fiscal deficit of BRL 228.1 billion, which the Minister of Finance, Fernando Haddad, promised to reduce to BRL 100 billion through measures to increase revenue and possible cuts in spending. Under pressure, Haddad has to negotiate with Claudio Cajado (PP-BA), rapporteur for the framework in the Chamber. One point to be discussed with the deputy is the amendment proposed by Senator Randolfe Rodrigues (without party-AP), which creates a budget margin of R$ 30 billion to R$ 40 billion, suggested by the Minister of Planning, Simone Tebet (MDB).

Cajado expressed this Thursday (10) the expectation of concluding the assessment of the measures by the end of next week. For this, he has a meeting of party leaders scheduled for Monday night (14), at the official residence of the Chamber, by its president, Arthur Lira (PP-AL). During an interview with Novabrasil FMCajado recognized that the Lula government has faced difficulties due to the lack of definitions surrounding positions for the Centrão, which caused the delay in the vote.

Even saying that the Chamber’s economic agenda is not contaminated by issues of this type, the deputy said that the government has been committing a “serious mistake” by announcing the names of André Fufuca and Silvio Costa Filho as future ministers without having defined the respective ministries. He considers that this creates an “unfavorable climate” for voting on the framework. The deputy also informed that, during this phase of the proposal’s processing back to the Chamber, neither the Minister of Finance nor any other member of the economic team contacted him.

The rapporteur also evaluates other points included in the Senate, such as the exclusion of the new fiscal rule from the Constitutional Fund of the Federal District, the Basic Education Maintenance and Development Fund (Fundeb) and investments in science and technology.

The mayor, Arthur Lira, announced the postponement of the vote, revealing that there is agreement only in relation to the exclusion of funds from the Federal District from the limits of the rule. Deputies resist removing Fundeb and spending on science and technology, seeking to pressure Lula to make Centrão enter the government.

In the Senate, an additional race is underway over exceptions passed by the House on tax reform. According to the economic team, the additions approved by the Chamber could increase the rates of the new Value Added Tax (VAT) by up to 27%. The IVA aims to unify taxes at the federal and state levels. According to the text approved by the Chamber, the maximum rate would be 25.45%.

Eduardo Braga (MDB-AM), rapporteur for the bill in the Senate, is negotiating with Bernard Appy, extraordinary secretary for tax reform at the Ministry of Finance, seeking an intermediate point. Senators will receive a study on the costs of the proposed exceptions.

The reform includes a reduced charge of 40% of the “standard rate”; tax exemption for the basic food basket; and special regimes for the financial, real estate and fuel sectors. Another unresolved issue concerns the future council that will replace the Council of State Treasury Secretaries (Confaz) in determining the rates. The seven states in the South and Southeast regions are seeking to improve representation in relation to the others, especially those in the North and Northeast, which already generates tensions in the federative pact.

Chamber may impose new obstacles to the Planalto agenda

In the quest to influence the narrative of the negotiations, Lula explained that he will not discuss the allocation of ministerial vacancies with the Centrão, but with the presidents of the parties.

In an indirect message, Lira recalled that without the informal bloc, Brazil could have followed the path of Argentina, suggesting that the influence of populist agendas harmful to the economy could have been more pronounced without the party arrangement. Earlier, he went so far as to say that the permanence of the Minister of Institutional Relations, Alexandre Padilha, in office had an “expiration date”.

In a more recent communication, the mayor also brought information that the agenda for administrative reform, contrary to the government’s plans, could move forward due to circumstances. The fact would lead the government to deal with an explicit loss of power.

Leandro Gabiati, from Dominium Consultoria, observes that Lula seeks to extend the deadlines for the necessary negotiations with center and center-right parties, thus trying to control the time of the change process. “The president recognizes the importance of making concessions, but aims to set limits to maintain the space of power that he deems essential to carry out his plans,” he said.

However, this posture faces evident resistance from the messages transmitted by Lira and its allies since last week, indicating that they will be able to keep the voting agenda blocked.

“This scenario is becoming increasingly risky, as it may even have implications for tax reform – a project of significant importance for economic prospects – which will require adjustments in the Senate before returning to the Chamber”, he evaluated.