Lira prioritizes reform, but Carf and framework are worrisome – 7/5/2023 – Market

Despite the insistence of the mayor, Arthur Lira (PP-AL), to start voting on the tax reform by this Thursday (6), the government of Luiz Inácio Lula da Silva (PT) has focused its efforts on trying to unlock the processing of the Carf project (Administrative Council of Tax Appeals) and the new tax framework.

For the economic team and palace assistants, the two proposals have preference in the order of government priorities, although the reform is also considered a strategic agenda.

Lira has said that she hopes to be able to vote on the three texts later this week, but has signaled the anticipation of the vote on the PEC (proposed amendment to the Constitution) of the tax reform.

In an interview with GloboNews earlier this Wednesday (5), Lira said that “the main focus of Congress is tax reform”. He has been telling interlocutors that he is taking care of the negotiations around the proposal, leaving the other two matters to the party leaders.

The argument of the president of the Chamber is that the PEC does not come up against the obstacle imposed by the constitutional urgency of the Carf project — for which there has not yet been an agreement and which prevents progress in the framework.

The government preferred to keep the focus on the Carf projects and the new fiscal rule. The resumption of the Treasury’s tie-breaking vote in tax dispute judgments in court is considered a “structuring measure”.

This Wednesday morning (5), Minister Fernando Haddad (Finance) had a meeting with Minister Alexandre Padilha (Institutional Relations) in an attempt to unblock the negotiations around the CARF text.

The proposal is so strategic that the economic team has already given way at important points in the text in an attempt to approve it.

According to reports, the minister’s office itself endorsed the article that authorizes companies in good financial conditions to negotiate overdue debts with discounts —a change that, in the opinion of technicians, disfigures the tax transaction tool, until then focused on more flexible negotiations with companies in difficulty.

The Treasury and the Planalto Palace also have an urgent need to approve the new fiscal framework, which has already been validated once by the Chamber, but needs to go through a new vote in view of the changes made by the Federal Senate. The outcome in the formulation of the fiscal rule is crucial to eliminate uncertainties in the formulation of the 2024 Budget.

Palace advisers reinforce that, since the beginning of the year, this has always been the government’s number 1 priority for the Legislative agenda and want to guarantee its approval as soon as possible.

Government members try to be optimistic about the possibility of putting Carf and the fiscal framework back on the Chamber’s agenda, but there is fear behind the scenes that the “concentrated effort” promised by Lira will end up messing up the economic agenda.

Some members of the government point out that there would be no big problem in leaving the tax vote for August and point out that the promise to appreciate the text in the first week of July was a commitment made by Lira — who now wants to honor it despite still resistance present at points in the text.

In an interview with the Metrópoles portal, Padilha said that the government will support the concentrated effort and made a point of emphasizing that this is an initiative of the parliamentarians.

“We will support this concerted effort. If this concerted effort ends this week by concluding these votes, it will be very good for the country,” he said.

But Padilha also said that the priority is the vote on the fiscal framework. “The central thing is to approve the fiscal framework this week. Both the original text of the Chamber and the text of the Senate, both create balanced fiscal rules, combining fiscal and social responsibility. We are going to work so that this week we conclude this vote.”

Party leaders assess that it is still necessary to construct and thoroughly debate the text of the reform with parliamentarians. So far, they say, there are not enough votes to approve the PEC, which needs the favorable vote of 308 deputies in two rounds in the plenary of the House before going to the Senate.

The government, in turn, rules out postponing the CARF and framework votes, which have not yet reached consensus in the Chamber. If the vote on the tax reform is left for August, it would not, in the view of Lula’s assistants, be a defeat for the government.

Parliamentarians from the PT’s allied base and members of the Ministry of Finance rule out the possibility of withdrawing the urgency of Carf to advance the discussion on the framework.

In the words of one of Lula’s ally, it is necessary to maintain urgency as a way of pressuring for the appreciation and approval of the project. Otherwise, it could end up being shelved.