Survey: Bolsonaro enjoys his best moment in Congress, but reforms environment still difficult

RIO DE JANEIRO BRAZIL – Estimates of the strength of the President’s legislative support base and the government’s ability to pass bills are growing, but the economic agenda raises caution after the intervention into Petrobras upper management.

Almost a month after the election of Arthur Lira and Rodrigo Pacheco to the presidency of the Chamber of Deputies and the Senate, with the support of President Jair Bolsonaro, political analysts’ appraisal of the government’s support base and its ability to pass bills in Congress has improved.

However, these changes are not matched by a shift in bets on the progress of the economic reform agenda in Congress, which is still viewed with skepticism by those who closely monitor the legislative agenda.

In fact, Bolsonaro’s decisions to eliminate federal taxes on diesel for two months and to change the command at Petrobras, have raised doubts about a potential change in the government’s stance on the economy, more than a year before the presidential elections.

This is shown in the new edition of Barômetro do Poder, an InfoMoney initiative that compiles monthly assessments and expectations of political risk analysis consultants and independent analysts about some of the most important issues in national politics.

The survey, conducted between February 22nd and 24th, shows that Bolsonaro is experiencing his best moment in his relationship with the National Congress, according to the experts surveyed.

In one month, the positive perception of the dialogue between the Executive and Legislative branches spiked from 7% to 50%, filling the gap left by the negative assessments, which dropped from 50% to 6% in the same period. Only 31% believe that the climate will worsen in the next six months.

Considering a scale of 1 (very low) to 5 (very high), the average assessment of political analysts consulted about the government’s ability to pass bills in the National Congress rose from 2.64 in January to the current 3.06.

“The election of Arthur Lira and Rodrigo Pacheco suggests a potential for increased agenda power of the Legislature vis-à-vis the Executive in the coming months,” notes one of the participants.

“The victory for the presidencies of the two houses has strengthened the government. They provide a boost, but do not yet guarantee a majority,” points out another analyst.

The survey shows that, by dividing the 513 deputies and the 81 senators into three groups (aligned with the government, opposition, or undefined), the average of the surveyed analysts’ estimates points to an allied base with 231 seats in the Chamber (45%) and 29 in the Senate (36%).

These figures are the highest recorded in almost two years and continue the upward motion that began in April 2020 – the period that marked Bolsonaro’s rapprochement with the “centrão” voting bloc, a movement that solidified with the election of Arthur Lira to the command of the Chamber of Deputies.

Since April, the positive perception of the allied base’s growth was only interrupted in December, after the defeat of most candidates supported by Bolsonaro in the October municipal elections and the uncertainty about the dispute for the presidency of the legislative houses.

“Bolsonaro’s embracing of a coalition in Congress substantially changes the scenario he dealt with during his first two years in office, particularly the first year and a half. Bolsonaro now has majority support in the Chamber, although insufficient for the passage of constitutional amendments, and minority but significant support in the Senate,” an analyst points out.

“The large number of independent legislators in both houses, however, provides the government with a chance to achieve a constitutional majority if there is consensus surrounding the bills. However, this support is more fragile than the one the government would have if it had a substantial party base, or at least one coming from an electoral coalition,” he says.

In his opinion, the picture may change “if the government’s popularity continues to deteriorate and it makes mistakes, including through the president’s outbursts.”

A factor that may help governability is the impact of the arrest of federal deputy Daniel Silveira’s (PSL-RJ), a prominent member of the so-called “ideological wing” that supports Bolsonaro. The president merely watched from the sidelines and refrained from mobilizing to help his ally, who is now facing prosecution in the Chamber of Deputies’ Ethics Council.

The Barômetro survey shows that 44% of respondents believe that the incident marks a decline in the ideological wing’s influence over the president’s conduct; however, 56% believe that the far-right group’s political capital should remain unchanged.

Reforms and privatizations

Despite the perceived improvement in the dialogue between government and Congress, the political analysts surveyed remain skeptical about the prospects of advancing tax and administrative reforms or a privatization agenda.

In the case of tax reform, the unification of federal taxes, as provided in the bill submitted by the government in July last year (PL 3.3887/2020) or with the Proposed Constitutional Amendment (PEC) 45/2019, is perceived as the path with the best chances of approval before the end of Bolsonaro’s mandate.

The inclusion of the Tax on Circulation of Goods and Services (ICMS) – imposed by states – and the Services Tax (ISS) – imposed by municipalities – in the tax simplification process has low chances of success, according to 88% of the political analysts surveyed.

The creation of a tax on financial or digital transactions, advocated by Economy Minister Paulo Guedes to enable broad payroll tax relief, is also a target of skepticism. On a scale of 1 to 5, the average probability assigned by respondents is 1.94 for the former and 2.13 for the latter.

Not even the most popular measures, such as the correction of the Individual Income Tax table (1.88), the taxation of large fortunes (2.00) or the institution of income tax on dividends (2.63) will have an easy time in Congress, according to the analysts’ assessment.

On the administrative reform front, only 3 of the 10 points listed by the survey are seen as having the greatest potential for progress: the approval of a bill that applies only to future entrants to public service; the end of compulsory retirement; and the end of automatic career progression, based exclusively on length of service.

The inclusion of current civil servants in the measures and the inclusion of military personnel, prosecutors, judges and members of Congress under the new rules is being regarded virtually as delirium. None of the analysts consulted considered the chances of this type of initiative to be high.

“The pandemic has defeated the liberals in the government. No reform will have an effect in time to strengthen the president’s chances of reelection. He is left with the populist primer. Paulo Guedes knows this,” says one of the participants.

“The main agenda in Congress will be to take control of the Budget distribution, thus stripping the federal government of the decision on the allocation of funds. This will give unprecedented power to the presidents of the houses and to the Mixed Budget Committee,” observes another analyst.

Nor is the scenario favorable for the privatization agenda. The Barômetro do Poder shows that, of the 8 companies often pointed out as priorities by the economic team for a privatization program, none is seen by any analyst as having a high chance of progressing during the current administration.

In January, although a minority in all cases, some analysts assigned a high probability to the privatizations of Eletrobras (14%), PPSA (15%), Correios (15%), Santos Docks (15%), Mint (15%) and Federal Service for Data Processing – SERPRO (8%). Despite the election of government allies to command the two legislative houses, pessimism grew.

The increase in pessimism came after President Bolsonaro announced he would eliminate federal taxes on diesel for two months without proposing fiscal compensation for the loss of revenues, amid the threat of a truckers’ strike, and announced the replacement of Petrobras’ current CEO Roberto Castello Branco, by General Joaquim Silva e Luna, who has been in charge of the Itaipu Binacional power plant complex.

The move, which still needs to be endorsed by the state-controlled oil company’s board of directors, was perceived by investors as a sign of political intervention and led to a sharp drop in Petrobras share prices on the B3 stock index.

“After the change at Petrobras, Paulo Guedes’ liberalism is an ornament of the government,” comments one analyst.

According to the majority of those consulted (76%), the two events have significant impacts on the future of the government’s economic agenda and should mark a change in the current administration’s stance.

“The Bolsonaro government is, after all, the government of… Bolsonaro. No one should be surprised by interventions in Petrobras, little attention to privatization, no interest in deep reforms in mandatory spending, his defense of the law enforcement lobby (notably of the military and police) and the repeated attacks on institutions,” says an analyst.

“Bolsonaro is Bolsonaro. Those who are still with him, those who always were (generals, ministers Ricardo Salles, Damares, Ernesto Araújo, Paulo Guedes) agree with the government’s direction. Increasingly, the market should be concerned with national reconstruction starting in 2023. A reflection on the enthusiastic support for this platform in 2018 would be welcome, in this respect,” he adds.

Despite the perception of a weakening of the liberal agenda, the bets among analysts for Paulo Guedes’ departure from the government have decreased. In May last year, 70% attributed a high probability of this occurring. The figure dropped to 46% in September, 40% in October and now stands at 25%.

Emergency aid

The Barômetro do Poder also heard analysts’ projections about the amount, scope, and duration of the new round of emergency aid.

The average of estimates shows that the benefit will last six months – 3 out of 16 respondents believe that the program will run until December, and 7 believe that the four months signaled by the government and the presidents of the legislative houses will be maintained.

The analysts expect R$295 monthly installments to be paid to 41.4 million beneficiaries – about 26 million less than the group of people served by the program’s first version, which ran until December last year.

As for the Emergency PEC, chosen by the government as a means to enable the benefit concession – which will occur through the opening of extraordinary credit – the experts surveyed see good chances of passing some of the “fiscal triggers” advocated by the economic team as a long-term counterpart.

According to the text, the measures are triggered if the federal government, state or municipal expenses reach 95% of net current revenues.

Among the temporary measures seen as more likely to be passed in Congress, are the suspension of admission or hiring of staff for government jobs, the creation of new government jobs or positions that require increased spending, the creation of mandatory expenses, and the creation or expansion of programs and financing lines.

Despite the design of the new program linked to the creation of a public calamity clause and the benefit being paid by extraordinary credit (i.e., not subject to the spending cap), the perception of political analysts remains negative about compliance with fiscal targets during the Bolsonaro government.

For 75%, the chances are high that the spending cap – a rule that prevents government expenses in one year from growing above the inflation rate of the preceding year – will be breached or weakened by 2022. Only 6% of respondents believe there is a low probability of a circumvention of the cap during the current administration. Since the start of official records, the unconcerned have never been in the majority.

Barômetro do Poder survey

This edition involved 16 participants, comprising 12 political risk analysis houses – BMJ Consultores Associados, Control Risks, Dharma Political Risk & Strategy, Empower Consultoria, Eurasia Group, MCM Consultores, Medley Global Advisors, Patri Políticas Públicas, Prospectiva Consultoria, Pulso Público, Tendências Consultoria Integrada, and XP Política – plus four independent analysts – Antonio Lavareda (Ipespe), Carlos Melo (Insper), Claudio Couto (EAESP/FGV) and Thomas Traumann.

As pre-agreed with the participants, the survey results are released only in aggregate form, and the anonymity of answers and comments is preserved.

Source: Infomoney