Senate President and Economy Minister Agree R$120 Billion Relief Package

RIO DE JANEIRO, BRAZIL – After negotiations with the Senate, Minister of Economy Paulo Guedes raised the relief package for states and municipalities in the Coronavirus crisis to R$120 billion, with R$60 (US$22.6) billion being transferred directly to the governors and mayors.

In mid-April, the bill presented by the economic team provided for R$77.4 billion in financial aid, with R$40 billion for direct transfer.

But Guedes’ plan was deemed modest, particularly in view of the project passed by the Chamber of Deputies, regarded by the government as a “bombs away!” agenda for high potential public spending.

As a result, the federal government had to give in and increase the amount, even for direct transfers, which have an impact on the budget.

Governors and mayors are asking the Planalto Palace for more money to tackle Covid-19 and to keep the government machine running. With the economic downturn, the revenue of states and municipalities is declining and some executives say they will soon run out of funds to pay salaries.

The main point under discussion, the amount of transfers to governors and mayors, was raised to R$60 billion, to be paid in four installments directly from the federal Treasury to the accounts of regional governments.

The new version of the relief package was submitted to the senators electronically by Senate President Davi Alcolumbre, early on Thursday afternoon, April 30th. The plan is to vote on the bill on Saturday, May 2nd.

In the report, the government proposes that R$10 billion be transferred directly to tackle the coronavirus – R$7 billion to the states and the Federal District and R$3 billion to municipalities. To complete the transfer, the government suggests that the amount of R$50 billion be distributed in two ways, with R$25 billion distributed directly to states and the Federal District and the remainder R$25 billion to municipalities.

The allocation of payments will be proportional to need, using several criteria, such as the ICMS (state tax) and ISS (municipal tax) losses caused by the pandemic and the number of inhabitants. The government does not rule out a reassessment of these figures should the regional governments’ fiscal crisis worsen.

The bill also provides for the suspension of state and municipal debt payments to the federal government this year, in addition to allowing debt renegotiations with public banks and international organizations. With these measures, the government estimates that there will be a relief of approximately R$60 billion. Therefore, the impact of the package is approximately R$120 billion, according to experts from the Ministry of Economy.

In return for the increase in the relief plan, the government demands a change in the LRF (Fiscal Responsibility Law) so that, for the next 18 months, state and local executives will be prevented from increasing salaries of civil servants. By doing so, the government claims there will be an overall savings of R$130 billion in public accounts.