Brazil Government Prepares to Announce Six Economic Measures – Learn about Each

RIO DE JANEIRO, BRAZIL – Jair Bolsonaro’s government is expected to submit to the National Congress this week, a set of six measures that will follow the already passed social welfare reform on the economic agenda.

The package includes changes in the rules for the civil service, budget de-indexation, the introduction of deterrents to contain the growth of expenditures, the review of public funding, a fast track to privatizations, and tax reform.

The move occurs a few weeks later than expected, but the economic team guarantees that there is a favorable environment in parliament for the measures to proceed. Despite the bold agenda, the government and legislators’ reformist profile should favor the continuity of the economic agenda planned by Economy Minister Paulo Guedes.

“Today, the president and Congress are reformists. The upcoming reforms were politically processed. There is a joint assessment: this one should ideally involve the Chamber, this other one, the Senate. This seeming delay, in fact, is an enormous gain”, Guedes told the newspaper Folha de S.Paulo last Sunday.

The minister provided details about the proposals to be submitted on Tuesday, November 5th. Below is a summary of what is expected of each. The first three should be initially analyzed in the Senate, while two will go through the Chamber of Deputies; the final measure will be scrutinized by a joint congressional committee).

1. PEC “Mais Brasil” (More Brazil)

The package provides for the submission of three PECs (Proposed Amendments to the Constitution) to the Senate. One of them would be the PEC “Mais Brasil”, named by Guedes as a federative compact.

This measure includes the de-indexation of budget expenditures and the redistribution of pre-salt resources to states and municipalities.

“Today Brazil is managed by software. Everything is earmarked. What is to be spent on education, health, and wages is already written,” said the minister. As for de-indexation, he suggests that, in the case of health and education, the two areas be jointly considered – which would give greater freedom to the administration.

The proposal also introduces the Federal Fiscal Council, comprising the President, the presidents of the Chamber of Deputies, the Senate, the TCU (Federal Audit Court), the STF (Federal Supreme Court) and the association of TCEs (State Courts of Accounts). The body will review the financial situation of federated entities–state and municipal.

2. Fiscal Emergency PEC

Another measure in the package sould be the PEC of fiscal emergency, which establishes deterrents to contain the growth of public spending by federal, state and municipal entities. The initiative is contained in PEC 438/2018, authored by Deputy Pedro Paulo, and is viewed by the government as the most important and urgent of the set.

The government expects to save R$24.78 billion (US$6.19 billion) in the first year of operation, a more modest result than expected by the Rio de Janeiro deputy’s proposal. One of the main deterrents is the temporary reduction of working hours and salaries for civil servants.

The proposal seeks to relieve the pressure that the spending ceiling places on discretionary spending in coming years, in view of the inevitable increase in mandatory spending. Given the urgency of the measure, a text with less fiscal impact was preferred, seeking an expedited procedure and a budgetary breathing space for Bolsonaro’s government.

On the other hand, states and municipalities have been included, and the measure may be combined with the so-called “Mansueto Plan”, which foresees savings with fiscal reforms in the states.

3. Federal Funds PEC

This measure reviews 281 public funds. “Some of these funds were created by a private pirate, a political swamp creature and a corrupt bureaucrat – one now lives in Miami, another fled to Portugal and the third died. The fund, however, is there, with earmarked money that nobody takes. It’s R$240 billion that the federal government holds but it’s blocked,” Guedes said in the interview.

The minister intends to use part of the funds’ resources to write off a portion of the public debt. The plans also include the construction of a large infrastructure fund – which he named a ‘national reconstruction fund’ and another fund for the eradication of poverty.

4. PEC on administrative reform

The Chamber of Deputies is expected to analyze the PEC on administrative reform, with far-reaching changes in the public service of all bodies, including the end of job stability for most careers in the case of new entrants, and more complex rules for career path progression.

The proposal provides for a longer career path for civil servants. For hiring, in addition to the bid, the government wants to demand proof of previous experience. After admission, all new civil servants will be required to undergo a three-year trial period as “trainees”.

Regular full-time employment offers to trainees will depend on professional performance and the existence of an opening in the position. The goal is to have more trainees than available openings. Job stability (tenure) would only occur after another seven-year probationary period. In other words, only after ten years of public service would civil servants become immune from firing without just cause.

According to specialists, given the difficulties of the parallel PEC on social welfare reform in advancing and ensuring changes in the social welfare system of the subnational bodies, the big gamble for mayors and governors would lie in the administrative reform itself.

“The major reform for states and municipalities will be administrative reform. Brazil has 11.5 million civil servants; only 1.2 million of them are federal. We are keeping a close eye on the proposal that should be divulged by the economic team. We are betting that it will be ambitious”, says Christopher Garman, director for the Americas of Eurasia Group, a political risk consultancy.

5. “Fast track” for Privatizations

The Chamber will also be processing a bill to introduce a new privatization model. The plan is to fast-track the sale procedures of state-owned companies. However, Guedes has been refraining from mentioning which companies could be affected by this change in procedure and pace.

6. Tax reform

In addition to these initiatives, the first stage of the tax reform should be processed by a joint congressional committee, made up of federal deputies and senators. The goal is to simplify taxes in the form of a dual VAT (Value Added Tax): one would unify federal taxes; the other, state and municipal taxes.

The measure has faced challenges in progressing through parliament, due to the rivalry between the two houses and the multiplicity of interests involved in the process.

Source: Infomoney