MP’s re-encumbrance drags on and businesspeople blame Pacheco – 02/09/2024 – Adriana Fernandes

The political negotiation of the MP (provisional measure) for the reimbursement of the payroll of 17 sectors of the economy and city halls has been going around in circles for a month.

President Luiz Inácio Lula da Silva (PT) lowered the MP with two days left until the end of 2023, with the strategy of gaining time in political negotiations with Congress.

And minister Fernando Haddad (Finance) has so far achieved what he needs with the help of the president of the Senate, Rodrigo Pacheco (PSD-MG).

Since the first weeks of the year, the results of Haddad’s meetings have been repeated with small variations on the same theme.

The negotiation with Pacheco is centered on three points:

1. The removal of the part of the MP that deals with re-encumbrance to be addressed in a bill to be sent by the Lula government
2. The maintenance in the text of the MP of compensation measures for loss of revenue, which include the creation of a limit for the use of credits obtained through the courts to reduce taxes, and the end of Perse (a policy that zeroed federal taxes during the pandemic to the events sector). Program that the president of the Chamber, Arthur Lira (PP-AL), does not want to end
3. The duration until the full reimbursement begins to take effect. Congressmen want to extend this deadline for another two years, until 2029

All of these points have been on the table since the second week of January, when Haddad returned from a brief break at the end of the year and began negotiating with Pacheco.

In the conversations, the president of the Senate warned Haddad that the exemption until 2027 was a political decision that Congress had already taken. And that, if the government insisted on the repayment during this period, it would suffer a new defeat in Congress

But why is dragging out negotiations so important to Haddad?

By maintaining the compensatory measures in force in the MP, Haddad is able to avoid a greater contingency of expenses in the first reevaluation of the 2024 Budget, which will be carried out at the end of March.

As Rogério Ceron, Secretary of the Treasury, pointed out, revenue is so good with the taxation of super-rich funds that the contingency could be zero.

A return of the MP by Pacheco would destroy these plans and force the government to calculate the cost of the exemption. Haddad would also be without the measures to compensate for loss of revenue. The worst of all worlds for the minister’s low lockdown and zero deficit fiscal target plans.

The Ministry of Finance sees an agreement close and considers that it can guarantee the reimbursement of city councils’ social security contributions in the bill.

The strategy of dragging out the discussion makes fiscal sense for Haddad, but it is also necessary for the government and Congress to signal the direction to the private sector. It’s been more than a month and a half of negotiations, Carnival is here, and uncertainty affects companies’ investment decisions.

On the side of the production sector, the impasse that has now formed is that businesspeople are placing the blame for the delay on Pacheco.

In their view, the president of the Senate made an agreement to return the MP. And he would not have done so until now, with an eye on President Lula’s support for his eventual candidacy for the government of Minas Gerais.

Businesspeople complain that Pacheco is giving strength to a negotiation that the vast majority of parliamentarians are not accepting to participate in.

Lira’s anticipated dispute with the Lula government over his succession as president of the Chamber placed more obstacles in the path of negotiations led by Haddad.

In this push and pull, a new factor entered the radar: the investigation by the Federal Revenue Service into suspected fraud of all types in Perse, including money laundering.

It is very difficult for Congress to sustain a public policy that encourages money laundering and fraud.

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