Senate threatens to impose a setback on Haddad; understand – 06/12/2023 – Market

After obtaining important victories for the economic agenda in the National Congress, Minister Fernando Haddad (Finance) is about to suffer some setbacks in votes in the Federal Senate —despite the good relationship built with the parliamentarians.

The House is due to vote this Tuesday (13) on the CAE (Economic Affairs Commission) on a bill that could extend until the end of 2027 the exemption from the payroll for companies in 17 sectors of the economy.

The policy has been extended repeatedly and, in its current version, runs through the end of this year. Postponing this deadline could embezzle public coffers by at least R$ 9 billion a year. There is also a risk that the project will reduce the social security contribution paid by municipalities with up to 142,600 inhabitants, increasing the impact on the accounts.

The proposal was presented by Senator Efraim Filho (União Brasil-PB), on the grounds that it is necessary to maintain jobs in the most labor-intensive sectors.

The party makes up the base of support for President Luiz Inácio Lula da Silva (PT) and has nominated three ministers, but has shown infidelity in some votes in the Legislative.

Senators also articulate the vote on a bill that authorizes the extension of rural credit debts contracted by small farmers. The National Treasury would provide up to R$10 billion to act as guarantor for new operations, paying off debts in case of default.

The proposal was on the CAE agenda this Tuesday, but, in this case, the government managed to postpone the vote. However, there is still a risk that the theme will be resumed next week.

On the Senate floor, the risk for the economic team comes from a complementary bill that establishes rules for the granting and evaluation of subsidies —including tax incentives.

The proposal toughens the LRF (Fiscal Responsibility Law) by providing for a limit for the granting of these benefits and requiring the setting of goals for generating employment and income, expanding exports, gaining revenue or reducing poverty, among other indicators.

The text also provides for the possibility of holding managers accountable in case of granting incentives without respecting the rules. Even though Haddad is working to reduce the subsidy bill, which ended 2022 at R$581.5 billion, the Treasury’s assessment is that criminalization is not the most appropriate path and could stifle fiscal policy.

Interlocutors from the government and Congress say that, although Haddad enjoys prestige with congressmen, even a partial defeat in these matters is taken for granted.

The discussion of the projects takes place at a time when the House is the scene of extremely sensitive votes for the government. The new fiscal framework, already approved by the Chamber of Deputies, and the nominations of Gabriel Galípolo for the directorship of the Central Bank and Cristiano Zanin for the STF (Federal Supreme Court) are being processed simultaneously in the Senate.

The conjunction of these guidelines ended up giving bargaining power to senators. The Treasury expected, for example, a smoother processing of the framework in the Senate, but the vote may end up being delayed to June 28, a week after the deadline intended by the folder. The text can also change.

The economic team was also uncomfortable with the submission of Zanin’s nomination for a seat on the STF at the time when the Senate is analyzing the new fiscal rule. The act was seen as yet another expenditure of energy by the government’s political articulators.

The Planalto Palace has already faced difficulties in consolidating a base of support in the Legislature. The wear and tear had its apex in the vote on the MP (provisional measure) of the administrative structure of the government, which almost lost validity amid the noise between Planalto and Congress.

At the time, Lula had to take to the field to resolve the impasse and try to mitigate the complaints of parliamentarians regarding the political articulation of the government. Planalto also released a record level of parliamentary amendments.

Despite widespread complaints about the political wing, Haddad and his team have had good transit in the National Congress. The Minister of Finance is constantly praised for his capacity for dialogue and willingness to respond to calls from parliamentarians, a posture that has already earned him important victories.

For this reason, the formation of a “bomb agenda” in the Senate raised the alarm in the economic team.

The payroll exemption project seeks to extend until December 31, 2027 the benefit that currently reaches 17 sectors of the economy.

The segments covered are footwear, call center, communication, apparel and clothing, civil construction, construction companies and infrastructure works, leather, vehicle and bodywork manufacturing, machinery and equipment, animal protein, textiles, information technology, communication technology , integrated circuit design, subway-railway passenger transport, collective road transport and road freight transport.

The bill’s rapporteur, senator Angelo Coronel (PSD-BA), added an article that reduces the contribution to the INSS (National Social Security Institute) paid by municipalities with up to 142,600 inhabitants, from the current 20% to 8%.

The parliamentarian’s argument is that the smaller city halls have little revenue of their own and receive smaller transfers from the FPM (Municipal Participation Fund), accumulating debts with Social Security.

Most of the small municipalities have their servants linked to the INSS, given the absence of their own Social Security regime (the so-called RPPS).

Senator Efraim Filho, author of the proposal that extends the exemption, says that the perspective for voting on the text is positive. “I believe that all the preliminary rites were fulfilled. The government’s resistance is natural”, says he, who chairs the Parliamentary Front for Commerce and Services.

According to Efraim, the measure is important to avoid layoffs in sectors that are labor intensive. The group estimates that the end of the policy would affect 600,000 workers, including layoffs and the absence of new hires.

“The government no longer has these revenues. having to pay costs”, says the senator.

The economic team is against extending the benefit, but admits behind the scenes the need to adopt a “damage containment” strategy, focused on overthrowing at least the device that reduces the charge on city halls.

In addition to the billionaire impact, its approval would create a disparity with municipalities that have their own RPPS and today pay rates even higher than 20% on the payroll.

According to interlocutors, parliamentarians are negotiating the possibility of leaving the prefectures’ election to a parallel bill, clearing the vote on the exemption for companies.

The proposal for rural credit, on the other hand, seeks to make it possible to renegotiate the debts of small producers. The text, presented in 2022 by former senator Álvaro Dias (Podemos-PR), intends to extend the debts and give a period of 20 years for payment. The text also “authorizes” the Treasury to issue R$ 10 billion in debt to guarantee these operations in case of default.

Government technicians claim that, even if Congress approves this project, the president would receive a recommendation to veto it, since the text does not indicate the source of the funds, nor how to accommodate them in the Budget.

However, this does not exempt the government from risks, as the veto could be overturned later by the National Congress. Therefore, the preference is to keep the topic off the agenda as much as possible.

The proposal’s rapporteur, Senator Wilder Morais (PL-GO), tries to put together a new version of the text, eventually with a smaller impact on the Treasury.

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BRL 9 billion
It is the annual impact on public coffers with the exemption from payroll

BRL 10 billion
This is how much the Treasury may have to pay if a project that provides for relief for rural sector debts is approved.

BRL 581.5 billion
It was the total of the government’s tax, financial and credit subsidies account in 2022