Haddad gives in to Congress and sees the risk of failing to meet the fiscal target growing

In yet another retreat in the face of parliamentarians’ dissatisfaction, the Minister of Finance, Fernando Haddad, decided that he will no longer extinguish the Emergency Program for the Resumption of the Events Sector (Perse), as provided for by the provisional measure (MP) issued by the government in recent days of 2023. Instead, it must send an urgent bill to Congress to limit the initiative, creating a “more focused” version of the program.

The decision, announced by Haddad on Tuesday (5) after a meeting with the president of the Chamber, Arthur Lira (PP-AL), and party leaders of the House, is the second concession that the minister makes to Congress in relation to MP 1,202 . The text also provided for the gradual reinstatement of payroll for 17 sectors of the economy that have received a discount on social security contributions since 2011.

Last week, given the dissatisfaction of parliamentarians and representatives of the sectors affected by the measure, the government had already nullified the entire section of the MP that provided for the reburdening of companies and opted to forward the matter through a bill, sent to the Chamber on February 28th. The rest of the text, until that moment, had been maintained.

The idea of ​​ending payroll tax relief and Perse had the objective of increasing revenue in order to make meeting the goal of a neutral result in 2024 more feasible, as dictated by the new fiscal framework.

The MP also began to limit compensation of tax credits confirmed by a final and unappealable decision to amounts starting at R$10 million, a measure that, for now, is maintained.

Scheduled to end on December 31, 2023, the tax discount granted to certain sectors of the economy was extended until the end of 2027 by decision of deputies and senators.

President Luiz Inácio Lula da Silva (PT) even vetoed the law that would extend the deadline for the initiative, but the veto was overturned. The impact, according to the Ministry of Finance, could reach R$19 billion per year to the Union’s coffers.

A People’s Gazetteas a communications company, is among the sectors benefiting from the extension of the payroll tax exemption.

Perse, created in 2022 to mitigate the economic impacts of the Covid-19 pandemic on companies in the events sector, consumed R$24 billion in tax waivers, according to a document prepared by the ministry to which the newspaper “The State of S.Paulo” had access.

The law that established it provided for the aid to the sector to be valid until February 2027, but, for the government, there were signs of irregularities in the use of the benefit, which would explain the amount much higher than the initial estimates. At the time of the program’s launch, the expectation was an annual waiver of R$4 billion.

To Congress leaders, Haddad said that the initiative even opened space for money laundering operations involving illicit activities.

With the extinction of Perse through MP 1,202, the Treasury estimated to increase revenue by R$8 billion this year, an amount that would be used to offset part of the waiver with the maintenance of payroll tax relief.

There was a reaction from entities in the sector, parliamentarians linked to the sector and Lira himself, which made the minister decide to maintain the program, but in a “leaner” version.

“We left the meeting now with the homework of designing how to contemplate these exclusions and with a focus on possible segments that have not yet been, have not undergone, recovery”, said Haddad after the meeting with Chamber leaders.

According to “Estadão”, the minister’s idea is to limit the government’s waiver to R$8 billion with the new version of the program.

Author of the bill that gave rise to Perse, deputy Felipe Carreras (PSB-PE) told “Folha de S.Paulo” that the idea is for the program to be redesigned with input from parliamentarians and sector representatives.

“We [pode] re-discuss with filters, locks, in short, so that we can make Perse within its nature for what it was proposed, for those who essentially have the right”, he told the publication. “We were unanimous in saying [que é para] punish anyone who has used Perse in a wrong, mistaken way.”

In addition to the payroll tax relief bills and the new Perse, the government will forward a proposal to deal with tax relief for municipalities that received a discount on social security contributions last year.

It is not yet clear what exactly will be proposed to the mayors, but, due to the municipal elections in October, the topic should also generate debates with risks of wear and tear for the government.

“After advancing and clashing with the main leaders of Congress with the sending of MP 1,202 at the turn of the year 2023, minister Fernando Haddad moved back two spaces on the political board”, summarizes Erich Decat, head of political analysis at Warren Investimentos.

For the analyst, given the uncertainties in the political field, it is difficult to estimate how much the government will be able to reverse from waivers in order to guarantee resources to meet the fiscal target.

“By dismembering the MP, the government opens three fronts of discussion at the same time, on topics sensitive to congressmen”, he explains. “Taking into account the recent votes within Congress and the municipal elections factor, we consider that today the scenario regarding the outcome of each of the proposals is still uncertain.”

A study by the Chamber’s Budget consultancy showed that the government may have to block R$41 billion in public expenditure in the first review of the year, on the 22nd, if it maintains the zero deficit target.

The survey takes into account the maintenance of payroll tax relief in 17 sectors, but does not consider the retreat in the decision to extinguish Perse, which means that, depending on the result of the discussion on the program in the Legislature, the need for blocking may be even greater.