Brazil’s Announcement to Reduce Deficit Receives Criticism

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The economic team in Brazil announced on Monday measures that they say will help reduce the expected deficit for 2016 and allow them to reach their goal of a surplus next year. Many of the measures, however, need to be approved by Congress, which will not be an easy task since many legislators have come out openly against some of the measures, especially the one which calls for a raise in taxes.

For Lower House President Eduardo Cunha although a good part of the measures are likely to be approved by Congressional representatives, he does not believe that the return of the unpopular tax over financial transactions (CPMF tax) will be approved by the legislative houses.

“If the government lost (the chance of implementing) the CPMF when it had power (in Congress), it will not be now that the government has a very weak base here that it will be able to approve it,” Cunha was quoted as saying by daily O Globo.

Finance Minister Joaquim Levy stated on Monday that revenues from the CPMF would be entirely used to pay social security benefits. According to Levy the social security deficit increased from R$58 billion in 2014 to R$88 billion this year and is expected to reach R$117 billion in 2016.

In addition to reviving the tax over financial transactions, the government announced it would reduce investments in infrastructure and important projects, such as “My Home, My Life”, delay wage increases, do away with agricultural subsidies and bonuses for federal employees.

Cunha also told reporters after the announcement that most of the measures announced Monday ‘depend’ on others. “Seventy-five percent of the expenses are not being cut by the government. The government is making adjustments on others’ accounts (i.e. Congress). It is a ‘pseudo-cut’ of expenditures,” said Cunha, noting that some of the reductions President Rousseff’s economic team proposes would be compensated by legislative bills (and money) re-directed towards government projects.

Some in the Lower House, however, believe that the measures, including the CFPM tax, are necessary to bring Brazil out of its financial crisis and return the country to the path of growth. “What we are asking for (0.2 percent) is very little,” said PT (Workers Party) leader, Jose Guimarães of the CPMF tax. “These are not bitter measures, they are reasonable, consistent ones, which need to be discussed with Congress, the Brazilian society and our investors,” noted the politician.

Senate president, Renan Calheiros applauded the measures, stating that the government is trying to ‘win over its inactivity and is recovering its initiative’. Some in the Upper House, however, were not as enthusiastic.

Ex-presidential candidate, Senator Aecio Neves, said that the population was once again called to pay the bill. “There are measures of cost reduction (announced), but as expected, the greater ‘fiscal effort’ comes from increasing taxes in the midst of a recession,” said the Senator.

Even senators of the President’s PT party were less than pleased with the government’s plans. “We believe that they should have focused more on taxing the ‘upper echelon’,” noted former student-movement leader-turned-politician Lindberg Farias.

According to some political analysts the latest measures announced by the Rousseff Administration is an attempt to show foreign investors that the country is trying to get its house in order. After the withdrawal of the country’s investment grade status by Standard & Poors’ last week, the government now fears that other rating agencies will follow suit, pulling the country into further economic distress.

According to Cunha, however, the latest measures, that may at first calm the financial market, could backfire. “When the market sees that it will all depend on the approval of Congress, which seems to me unlikely, it (financial market) may become nervous,” concluded the president of Brazil’s Lower House.