New tax rule may be presented in the coming days, estimates Fazenda – 03/26/2023 – Market

The cancellation of President Luiz Inácio Lula da Silva’s (PT) trip to China, previously scheduled to start this Sunday (26), made it possible for the government to make public this week the proposal for a new control rule for public accounts.

Among the members of the Ministry of Finance, it is said that it is natural that the presentation to society will be made in the next few days – mainly after Minister Fernando Haddad said last Friday (24th) that the technical area has already completed the design of the new rule. There has not yet been an official announcement about the presentation.

Haddad said on Friday that the proposal was closed by the technical area and that the information demanded by Lula would be presented to the president in the coming days. “Now let’s go back to the president with the answers to the questions he asked, and just set the date [do anúncio]”, he stated.

There was an expectation that the new rule would be announced only after the trip of the president and ministers to China. Lula went so far as to say that the rule would have to be announced so that Haddad would remain in Brazil to manage the repercussions on the subject.

“we boarded [no] Saturday [25]. Haddad cannot communicate one thing and leave. Realize? It would be weird. I announce it and leave,” Lula said in an interview with the Brasil 247 portal last week.

“Haddad has to announce and stay here to debate, to answer, to give an interview, to talk with the financial system, with the Chamber of Deputies, with the Senate, with other ministers, with businessmen”, added the president.

In addition to Lula, Haddad also canceled his trip to China – which opened up chances for the definitions on the new fiscal rule to advance this week. On the other hand, other members of the economic area even considered over the weekend that other issues, more linked to politics, could occupy the president’s attention this week — such as the imbroglio over the processing of MPs (provisional measures).

The new framework for public accounts needs to be sent to Congress through a bill. There, it can be changed by parliamentarians.

The government has until August to present its proposal, as required by a constitutional amendment enacted last year. But Haddad decided to anticipate it as a way of nodding to the market in view of investors’ fears about the government’s fiscal responsibility.

The government’s expectation is that the rule will reassure the market’s perception of the public accounts, which may help the Central Bank to slow down the conduct of monetary policy.

As shown by Sheet, the lack of definition surrounding the parameters of the new fiscal rule is behind the delay in the proposal. According to interlocutors, there were a series of pending strategic decisions, which are decisive for knowing what space the government will have to spend in the future.

One of them is the need to accommodate the resumption of the constitutional linkages of health and education, which ensure a higher spending floor for both areas.

Discussions take place under pressure from PT members so that the pace of adjustment in public accounts is more gradual than intended by Haddad, who seeks to meet a more ambitious goal — to zero the deficit as early as 2024.

The assessment among PT members, however, is that a fiscal tightening at this time could throw the country into a violent political crisis, compromising the government’s popularity and opening space for the rise of former president Jair Bolsonaro’s (PL) political group.