Government Proposes R$40 Billion Aid to States and Municipalities to Fight Covid-19

RIO DE JANEIRO, BRAZIL – The government is forwarding to the party leaders of the Chamber and Senate, a proposal to transfer up to R$40 billion (US$8 billion) in direct funding for states and municipalities to tackle Covid-19.

In exchange, governors and mayors getting the federal money will be required to suspend salary increases to their civil servants for a period of two years.

The government’s proposal is either to replace the emergency bill’s text of aid to states and municipalities currently in the Chamber, or to submit a new text through an allied senator. A Provisional Measure (MP) containing the terms of the proposal  made to the legislators has not yet been ruled out. The initial proposal was R$32 billion, but there is room to go up to R$40 billion.

The bill that is being processed in the Chamber, sponsored by its president, Rodrigo Maia, could affect the public coffers by up to R$222 billion, depending on its scope, according to estimates by the Secretary of the National Treasury, Mansueto Almeida.

The Minister of Economy, Paulo Guedes, has already advised that he will not accept an increase in the debt margin of States.

The Mansueto Plan, which provided financial relief to regional governments struggling to pay government workers and suppliers, but which required structural fiscal adjustments to public accounts, such as reducing personnel expenses, was abandoned by the Minister.

The attempt to reach an agreement began to be stitched up at a meeting held on Thursday. Guedes advised Maia that the administration “would not go any further”. The Minister sent him an article by economists Marcos Lisboa and Marcos Mendes alerting that the bill was “the mother of all tax bombs”. On that same day, Maia did not put the bill to a vote.

A source from the economic team reported that the government negotiated directly with the party leaders because it is convinced that Maia used the bill as a “disguise” to wear down President Jair Bolsonaro and help the governors of Rio de Janeiro, Wilson Witzel, and São Paulo, João Doria.

The Minister said that Maia has two ways to go: continue to confront the President or seek conciliation around the new proposal. Guedes has stressed to the party leaders that he has attended governors and mayors, but that the rapporteur’s opinion, Pedro Paulo, “raised the bet” to an unacceptable level.

Source: O Estado de S. Paulo