Haddad cancels trip to China and tax rule gets a new chance on the agenda – 03/25/2023 – Market

The cancellation of Minister Fernando Haddad’s (Finance) trip to China opens up chances for the definition of the new fiscal rule to advance this week.

On Friday (24th), Haddad had stated that the proposal was closed by the technical area and that new information would be presented to President Luiz Inácio Lula da Silva in the coming days. “Now let’s go back to the president with the answers to the questions he asked, and just set the date [do anúncio]”, he stated.

There was an expectation, however, that the new rule would be announced only after the trip of the president and ministers to China – which was canceled due to Lula’s health condition, which is treating pneumonia.

Haddad reinforced that the final word on the new fiscal model will always be with the president. “He may ask new questions. But the ones asked at last Friday’s meeting [17] are already elucidated”, he said.

Members of the government’s economic area tell the Sheet that it is still too early to talk about any changes to the timetable for completing the proposal.

Although Lula will now be able to focus more on domestic matters next week, the view that it is possible that other issues in the political area will also occupy the agenda of the representative – such as the imbroglio over the processing of MPs (provisional measures) and the march of mayors, scheduled for March 27 to 30.

The timetable on the progress of the proposed fiscal rule is closely followed by the market, since the rule –which will replace the current spending ceiling– should serve as the main reference for the trajectory of public accounts in the coming years.

The government has until August to present its proposal, as required by a constitutional amendment enacted last year. But Haddad decided to anticipate it as a way of nodding to the market in view of investors’ fears about the government’s fiscal responsibility.

The minister tried to present the proposal before the trip to China, but Lula publicly said that he thought it best that Haddad talk more about the proposal with the political class and economists. In addition, the president prefers that Haddad be in Brazil for the repercussions on the announced proposal.

“we boarded [no] Saturday [25]. Haddad cannot communicate one thing and leave. Realize? It would be weird. I announce and leave. Haddad has to announce and stay here to debate, to respond, to give an interview, to talk with the financial system, with the Chamber of Deputies, with the Senate, with other ministers, with businessmen,” added Lula in an interview with the Brasil portal. 247.

The government’s expectation is that the rule will help to reassure the perception of public accounts, which could lead even the Central Bank to a slowdown in the conduct of monetary policy.

As shown by Sheet, the lack of definition surrounding the parameters of the new fiscal rule is behind the recent delay in the proposal. According to interlocutors, there are a series of pending strategic decisions, which are decisive for knowing what space the government will have to spend in the future.

One of them is the need to accommodate the resumption of the constitutional linkages of health and education, which ensure a higher spending floor for both areas.

Discussions take place under pressure from PT members so that the pace of adjustment in public accounts is more gradual than intended by Haddad, who aims at a more ambitious goal of zeroing the deficit as early as 2024.

The assessment among PT members, however, is that a fiscal tightening at this time could throw the country into a violent political crisis, compromising the government’s popularity and opening space for the rise of former president Jair Bolsonaro’s (PL) political group.