Brazil’s New Federative Pact May Transfer R$500 Billion to States and Cities

RIO DE JANEIRO, BRAZIL – As a result of the changes in the so-called “federative pact”, between R$400 billion (US$100 billion) and R$500 billion could be transferred to states and municipalities over the next 15 years.

The announcement was made by Economy Minister Paulo Guedes, who joined President Jair Bolsonaro in the National Congress to submit a package of three proposed amendments to the Constitution (PEC) that deal with economic reforms impacting local governments.

During the ceremony, held in the Senate presidential cabinet, Bolsonaro said that after the reform, funds should get to where people are, for public policies on health, education, sanitation, and security.

“The states and municipalities will decide what to do, better than many of us, because they experience the day-to-day issues locally,” the president said. “Yes, we would like to continue welcoming mayors and governors, but only as visiting guests and not to come and ask us for something in the budget. These [resources] are already guaranteed in this amendment to the Constitution.”

Along with the PEC of the New Federative Pact, the President of the Senate, Davi Alcolumbre was handed the Fiscal Emergency PEC, or Deterrents PEC, which sets automatic deterrents to public spending in case of financial crisis in federal, state and municipal governments, and the Funds PEC, which revises the linking of revenues to the 281 public funds in exostemce today.

Minister Paulo Guedes explained that the goal is to modernize the Brazilian state in order to decentralize public policies, guaranteeing revenues. “The pact encompasses several dimensions, with the construction of a fiscal culture, a culture of austerity and financial sustainability. In fact, we are going to ensure solid finances for the Brazilian Republic.”

“Simultaneously, we are decentralizing resources to states and municipalities in order to strengthen the Brazilian federation. The others are auxiliary dimensions such as the administrative reform, the state of fiscal emergency, and privatizations,” he explained.

Bolsonaro, the ministers and advisors walked between the Palácio do Planalto and the Federal Senate. After the projects had been submitted, the president quickly stopped by the Chamber of Deputies’ plenary session and, again on foot, returned to the Executive Branch headquarters.

Procedure

As the proposals for the federative pact have been debated for months between the economic team and party leaders, the government has relinquished the authorship of the text so that they can begin to be processed by the Senate.

The proposals will be submitted by the government leader in the Senate, Fernando Bezerra Coelho, and by the government leader in Congress, Senator Eduardo Gomes.

“The Parliament’s will alone will not decentralize resources. Parliament has always wanted this, but the fact is that the government has grasped the point”, said the president of the Senate, Davi Alcolumbre.

The senator pointed out that, over the past decades, the centralization of resources in the central government has prevented the development of many regions in the country, particularly the North and Northeast, but that this is now the current government’s flagship.

“When the President of Brazil introduces proposals such as the decentralization of resources, and when the Parliament votes on an issue such as the transfer of rights, which also divides resources from the exploitation of the oil between states and municipalities, these are specific indications of the commitment and the rhetoric of decentralization guaranteed by the government from day one,” added the President of the Senate.

Regarding the timeline for processing the PECs, Alcolumbre said it should be set on Wednesday, November 6th, in a meeting in which he expects the attendance of 81 senators “to officially receive the three proposals”. The government expects the pact to be approved by mid-2020.

Welfare

Davi Alcolumbre stressed the Senate’s work this year and recalled that the parallel PEC to the welfare reform, which extends the new rules to states and municipalities, should be voted on Wednesday, November 6th, in the Chamber’s Committee on Constitution and Justice (CCJ). “The Senate fought to include this issue in the new constitutional amendment.”

Minister Paulo Guedes expressed his gratitude to the Senate for forwarding the parallel PEC and said that this proposal also serves the purpose of strengthening the federation.

“A reform in which the Union has R$800 billion [of savings] and the states and municipalities are included and fortified, is better than a R$1 trillion reform in which states and municipalities are excluded,” Guedes said, commenting on the initial and final forecasts of the federal government’s economy with the Welfare reform.

Source: Agência Brasil