Brazilian government’s next battle in Congress: the fiscal framework faces resistance and must undergo changes

By Silvio Ribas

One of the crucial projects for the government of Luiz Inácio Lula da Silva (PT), the new fiscal framework, under discussion in the House of Representatives, will have changes.

For this, the Executive will need to make concessions.

Congressman Cláudio Cajado (PP-BA), the proposal’s rapporteur, has already said that the text delivered by Finance Minister Fernando Haddad will change even before it is voted in plenary and sent to the Senate.

One should include punishment in case of non-compliance with the spending rule.

The congressman also emphasized that there is no reason for the federal government to pursue a fiscal target without foreseeing the consequences if the result is not reached.

Most of the congress members he talked to agreed with the need to impose sanctions without necessarily constituting a crime of responsibility, liable to lead to the opening of impeachment proceedings against the president of the Republic.

The alternative to criminalization would be determining periodic contingencies to the Budget or cutting resources for certain areas.

The Workers Party (PT) in the House of Representatives said it does not accept this option either.

Finance Minister Haddad said in an interview with CBN on Friday (5) that he disagrees with the possibility of making non-compliance with the goal a crime, considering that this initiative can be affected by Legislative or Judiciary decisions.

Recently, the fight for the approval of the fiscal framework has become even more challenging due to the government’s evident difficulties in articulating with Congress.

The government’s significant defeats in the House, such as the removal from the agenda of the Fake News Bill, which had its support, and the rejection of items that made the Sanitation Framework more flexible, decreed by President Luiz Inácio Lula da Silva (PT), are clear indications of this fragility.

During a meeting in the Senate by the Competitive Brazil Movement (MBC) in late April, the rapporteur classified the proposed framework model as “intelligent, modern, and with anti-cyclical triggers.”

Cajado, however, emphasized that he was open to suggestions.

His opinion should be presented next Wednesday (10), after the return of the president of the House, Arthur Lira (PP-AL), from an official trip to New York (USA).

The general expectation is that the vote on the text will take place next week.

The project’s name has changed from framework to “sustainable fiscal regime”.

On the other hand, the opposition senators promise to impose more changes to the project, which they consider vague and incapable of guaranteeing the balance of public accounts.

The leader in the Senate, Rogério Marinho (PL-RN), says that the lawmakers critical to the government will strive to approve a better version of the framework.

But he warns that the first project sent by the Presidential Administration to Congress is only a “letter of intentions.”

“The proposed draft does not guarantee security for the economy to grow consistently in the future,” he said.

For Izalci Lucas (PSDB-DF), there is no doubt that the government’s text is less credible than Haddad’s previous presentation in the Senate.

“It is ridiculous to remove fiscal responsibility from the Union.”

“Spending everything and leaving the burden for the next government is easy.”

“That’s why the Fiscal Responsibility Law exists,” he argued.

According to him, the framework leaves states and municipalities under pressure but frees the Union, “just sending to Congress justification why it did not meet the target.

Senator Oriovisto Guimarães (Podemos-PR) evaluated that the original text of the framework brings “catches” capable of opening loopholes for extra spending of almost R$1 trillion until 2026.

“It changes the Fiscal Responsibility Law, disobliges the government to make contingencies, and even introduces questionable devices,” he said.

One of these gimmicks would be to exchange payment volume for budgeted volume.

“This alone releases R$55 billion,” he illustrated.

The second “catch”, adds the senator, would consist in including, as a basis for calculating the framework, the R$145 billion authorized by Congress to be spent in 2023 outside the ceiling in Constitutional Amendment 126/22.

This provision alone would give R$810.8 billion of additional spending until the end of Luiz Inácio Lula da Silva’s (PT) term in office.

RECOGNITION OF THE PROJECT’S IMPORTANCE GUARANTEES APPROVAL

Specialists consulted by Gazeta do Povo believe that the government’s defeats in Congress do not threaten the approval of the fiscal framework since it is a structural measure of real importance, attested by almost unanimity among parliamentarians.

However, they note that the weakness in political articulation will prevent the government from exercising decisive influence over the final design of the proposal.

According to Marcos Queiroz, an analyst at Arko Advice, the formal opposition to the government may have been encouraged by the defeats suffered in the House but recognizes that they were the result of unstable votes from the center.

He predicts that the centrists tend to act propositionally to make the proposal more rigid rather than opposing the fiscal framework.

Luiz Filipe Freitas, an analyst at Consillium, also believes in approving the text based on a negotiation effort between the Executive and Legislative branches.

He highlights the importance of Arthur Lira, who should lead the changes in the project without harming the government.

According to Freitas, the key to current governability is to convince Lira and his allies about the importance of the fiscal framework.

Leandro Gabiati, director of Dominium, considers that there is no controversy regarding the project’s merit but that political risks can affect its processing.

He highlights the pressure from economic players in favor of the approval of the framework but also mentions the CPIs that will be installed in the coming weeks, the investigations involving former president Jair Bolsonaro and the government’s articulation failures as possible obstacles.

With information from Gazeta do Povo

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