Haddad’s package completes two months at risk – 03/14/2023 – Market

The package presented by Minister Fernando Haddad (Finance) to improve public accounts completed this week two months since the announcement amid difficulties in articulating the government. The problems have been raising alerts to the economic team about the risks of dehydration of the measures in Congress —and the consequent frustration of the improvement in public accounts promised by the minister.

The difficulties in the negotiations occur at a moment considered crucial for Haddad, as the government presents this month the proposal for a rule to replace the spending ceiling – which also depends on the approval of parliamentarians. The topic is one of the most awaited by the market, as it directly interferes with expectations regarding the country’s fiscal sustainability over the coming years.

The scenario is observed in the midst of the attempt by the Luiz Inácio Lula da Silva (PT) government to form a solid base of support in the Legislative, especially in the Chamber of Deputies. So far, the petista has firm support from less than half of the total number of members of the House.

Parliamentarians heard by Sheet recognize the performance of Minister Alexandre Padilha (Secretary of Institutional Relations) in the negotiations, in movements such as meetings with benches, release of amendments and appointments in government structures. Even so, they believe that it is necessary to speed up the process.

Among the items in the package presented by Haddad on January 12, the one that generates the most apprehension at the moment is the MP (provisional measure) that reestablishes the so-called casting vote of the CARF (Administrative Council of Tax Appeals) — administrative court that judges tax conflicts between taxpayers and the IRS. The instrument means that, in case of a tie, a government representative decides on the topic.

Faced with the risk of defeat, the government had already put together a new text in agreement with the OAB (Brazilian Bar Association). But the matter is not considered closed by deputies, and in the Ministry of Finance itself there are doubts as to the approval of the measure in the terms negotiated.

Government MPs have the immediate force of law, but need to be approved by Congress within four months – otherwise, they lose their validity.

A Sheet, leaders claim, with reservation, that it caused discomfort that Congress was excluded from the negotiations between the government and the OAB, and they say that it is necessary to discuss other points of the MP. As it stands, they say, it will be overthrown.

Even deputies from the base of the government presented amendments to end Carf’s casting vote. They argue that, in the event of a tie in the trial, the result is favorable to the taxpayer (as it has worked since 2020).

“The balance of public accounts necessarily goes through the reorganization of mandatory expenses, reduction of subsidies and sectoral fiscal incentives and the institution of a healthy fiscal framework. -Tax”, said Deputy Pedro Paulo (PSD-RJ), deputy leader of the government, in an amendment presented against the MP (in fact, the casting vote can be both pro-Tax and pro-taxpayer).

A chief of the center says, however, that there is room for dialogue with the Executive in an attempt to find a middle ground.

According to reports, the mayor himself, Arthur Lira (PP-AL), was dissatisfied with having been sidelined in the negotiations on the MP. In conversations with allies, Lira said that the agreement should not be taken into account by Congress, which has autonomy to decide the issue.

The mayor also made his dissatisfaction clear in a meeting with the executive secretary of the Treasury, Gabriel Galípolo, last week.

Aware of the problems in the relationship, President Lula met with Lira last Thursday (9) and, according to dinner participants, said that all government ministers are available to talk and clarify all matters.

Despite the impasses and given the lack of a parliamentary base allied with the government, the mayor is giving Planalto time to organize itself in the House. He has put less controversial agendas for voting in the plenary and intermediated agreements of interest to the government for the distribution of commissions.

Parliamentary leaders, however, assess that Lira’s goodwill may run out soon, and the first defeats for the government may come between March and April.

In a meeting with businessmen last Monday (6), the President of the House said that Lula does not have votes in Congress to approve economic reforms. He stated that the PT party needs time to stabilize itself internally, organize a parliamentary base and find a path to pursue its agendas.

“We will also have time for the government to stabilize itself internally. Because today the government still does not have a consistent base, neither in the House nor in the Senate, to face matters of simple majority – let alone matters of constitutional quorum”, said Lira.

“We have a government that was elected with a minimal margin of votes and that needs to understand that we have an independent Central Bank, regulatory agencies, the State-Owned Companies Law and a Congress with broader attributions and that this needs to be negotiated with common sense, a lot of conversation, breadth, clarity, but with a direction, a direction that we need to define now in March”, he said.

On the other hand, parliamentarians also claim that another impasse to be overcome and that affects the progress of government matters revolves around the dispute between Lira and the president of the Senate, Rodrigo Pacheco (PSD-MG), on the return of the joint committees that analyze MPs.

Since February, Pacheco has articulated with party leaders the return of the mixed commissions. The measure pleases senators, who have complained that they receive the measures with little time for analysis, close to expiry, with the delay of the Chamber in voting on the proposals.

The mayor, however, is against the immediate return. parliamentarians claim that the leadership of the Chamber defends that the commissions be installed only in August.

In practice, this strategy gives more power to Lira, who maintains the nomination of the rapporteurs of the provisional measures and sets the pace of the votes.

Such as Sheet showed, the impasse was dealt with in a meeting between Lula and Lira on Thursday. The government has an interest in overcoming these divergences.

Among the MPs signed by Haddad two months ago, the one transferring Coaf (Control of Financial Activities) from the Central Bank to the Ministry of Finance is also at risk of being overthrown.

The PM of fuels can also be modified, which, as shown by the Sheethas already made the government outline the strategy of postponing its vote as much as possible.

If an MP is not approved within 45 days, it locks the voting agenda of the House in which it is located until it is voted on or expires.

The last MP, more consensual, excludes ICMS from the calculation basis of contribution credits for PIS and Cofins.

The government depends on Congress to guarantee almost half of Haddad’s fiscal package (which would generate BRL 242 billion in improvement for public accounts if it were fully implemented).

According to the Treasury, the changes in Carf generate a total of R$ 50 billion this year. The use of ICMS credits, R$ 30 billion. And the MP that raises fuel prices, R$ 28 billion.

The government intends, with these measures, to reduce the primary deficit for 2023, initially estimated at 2.16% of GDP (Gross Domestic Product), to less than 1%.