Lula tries to play a leading role in the discussion of tax reform in the Senate

President Luiz Inácio Lula da Silva (PT) intends to adopt a different strategy during the course of the tax reform in the Senate in order to gain prominence with the approval of the matter. The strategy marks a change on the part of the Chief Executive, who was absent from the discussions during the negotiations that preceded the approval of the proposal in the Chamber of Deputies.

The petista, for example, had influence in choosing Senator Eduardo Braga (MDB-AM) to report on the tax reform in the House. In addition to the alignment with the Executive, the evaluation is that he has a good dialogue with the opposition bench.

On another front, Lula intends to make a personal effort to include tax incentives for automakers in the Northeast and Midwest in the tax reform. The excerpt was removed from the text by a highlight presented by the PL bench in the Chamber, former president Jair Bolsonaro’s party, which irritated Lula.

The amendment had been accepted by the rapporteur for the reform in the Chamber, deputy Aguinaldo Ribeiro (PP-PB), on the eve of the vote and was now called the “Lula amendment”, which increased the mobilization of opposition parliamentarians for it to be overthrow. Because it was a deletion of the text, the government had to secure the support of 308 deputies to keep the article within the Proposed Amendment to the Constitution (PEC). The score reached only 307 votes – that is, the defeat was given by just one vote.

Last week, during a meeting with party leaders at the Alvorada Palace, Lula thanked the article for approval, but regretted the deletion of that specific section. To the parliamentarians, the PT member indicated that he intends to work so that the text is reestablished in the Senate process and promised to demand, including from the PT bench, more effort on this point.

Tax incentive is seen as essential for Chinese companies to enter Brazil

The inclusion of tax incentives for automakers is seen as essential by Lula’s allies for the Chinese company Beyond Your Dreams (BYD) to set up its factory in the city of Camaçari, in Bahia. The amendment overthrown by the Chamber provided that industrial projects in the Northeast approved by the end of this year could enjoy PIS, Cofins and IPI tax benefits.

Before the approval of the reform by the Chamber, the government was working with the expectation of signing a Provisional Measure (MP) extending the tax incentives for another five years, to allow the installation of the Chinese factory in Bahia. However, this would be innocuous because the tax reform does away with the IPI, the tax on which these incentives apply.

BYD has already announced that it intends to invest BRL 3 billion to establish itself in Brazil, but so far only the protocol of intentions has been signed between the Chinese company and the Brazilian government. The automaker intends to use the plant that was used by Ford until 2021, when the American company announced the end of car production in Brazil and laid off about 4,000 workers in the region.

The assessment among Lula’s allies is that an eventual defeat in the section on the tax reform could make the conclusion of the agreement unfeasible. According to the government supporters, Lula could be “demoralized” with China, a country with which the PT has been trying to expand relations since he took office. In addition to BYD, the measure would also serve Stellantis, based in Pernambuco, and Caoa, with facilities in Goiás.

Lula wants to keep Haddad at the forefront of tax reform

Despite Lula’s greater involvement in the negotiations, Planalto intends to keep the Minister of Finance, Fernando Haddad, as the protagonist of the negotiations for the approval of the tax reform. The assessment is that the minister has already managed to overcome resistance from the opposition in the House during the course of the fiscal framework and therefore should maintain the same strategy now.

The minister met with Pacheco this Tuesday (11) to discuss the reform process in the House. At the Treasury, every effort is made to maintain the bases of the text approved by the deputies and avoid substantial alterations by the senators.

In addition, Haddad indicated that the second stage of the tax reform, which will deal with the collection of taxes on income, should be processed in the National Congress simultaneously with the analysis of the PEC that addresses taxes on consumption by the Senate. In an interview with the podcast The subjectfrom the portal G1the minister argued that the Executive and Legislative should share responsibilities on the subject.

“We have to complete the processing of the PEC in the Senate. But we are not going to wait for the end of the procedure to send the second phase of the reform to Congress. Because it has to go along with the Budget. So, in the same way that the fiscal framework and the PEC went hand in hand, [a reforma tributária no] Senate and the Budget will have to go hand in hand with the second phase [da reforma tributária]which will deal with these matters,” he said.

In Planalto’s calculations, Haddad has already managed to oil his relationship with the mayor, Arthur Lira (PP-AL), and his negotiating power has made matters of interest to the government advance in the House. With that, the assessment is that Lula’s absence from these talks prevents resistance to the PT from blocking economic matters in Congress.

According to interlocutors from the Planalto, the approval of economic matters in this first year of office will make it possible for Lula to put his government plan into practice in the following years. The initial assessment is that with former President Bolsonaro ineligible and with the economic agenda unlocked, Lula will be strong to run for re-election in 2026.