Brazil’s Fiscal Package Faces Setback as Government Struggles to Secure Votes

The Brazilian government’s fiscal adjustment package encountered a significant hurdle on Wednesday, December 18, failing to secure enough votes to pass a crucial Constitutional Amendment Proposal (PEC).

This setback forced House Speaker Arthur Lira to postpone the vote until Thursday. The proposed amendment is part of a broader set of fiscal measures.

It seeks to modify rules for salary bonuses, the National Education Development Fund (Fundeb), and public sector supersalaries. However, the government’s own allied base showed resistance to spending cuts.

At 11:30 PM, lawmakers voted on a procedural motion to prioritize the PEC for voting. The motion passed with 294 votes in favor and 172 against. Yet, this tally fell short of the 308 votes required to approve a constitutional amendment.

Notably, some allied deputies voted against the proposal, signaling discontent with Finance Minister Fernando Haddad and opposition to the economic team’s proposed adjustments.

All 12 PSOL deputies present and two PT members voted against the measure. The government will attempt to pass the PEC again on Thursday in a session scheduled for 10 AM.

Time is running out as Congress enters recess after this week. The administration still has a third, more controversial fiscal project to address.

Brazil’s Fiscal Reforms

Government Leader in the Chamber, José Guimarães, remained optimistic about passing the PEC on Thursday. He suggested the Senate might hold a Saturday session to complete the package’s approval process.

The main change in the PEC text, reported by Deputy Moses Rodrigues, concerns the Fundeb allocation. The Finance Ministry initially proposed allocating up to 20% of federal Fundeb resources to full-time education.

The revised text reduced this to 10%. This adjustment will only take effect in 2025, reducing the fiscal impact from R$11.6 billion ($1.84 billion) to R$4.8 billion ($0.76 billion).

From 2026, states and municipalities must allocate 4% of their own Fundeb resources to this program. The PEC also addresses public sector supersalaries and modifies eligibility for salary bonuses.

It extends the Untying of Union Revenues (DRU) until 2032. However, it no longer revokes paragraphs requiring the government to execute the budget approved by Congress.

As the government navigates these fiscal challenges, the coming days will be crucial in determining the fate of its economic agenda. The outcome will significantly impact Brazil’s fiscal landscape and economic policies in the years ahead.

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