Tax Reform in Brazil Stalled in the Midst of Political Dispute and “Fiscal Abyss”

RIO DE JANEIRO, BRAZIL – Brazil is heading into a “fiscal abyss” and a serious crisis next year, following the decision to postpone parliamentary debate on a bill extending emergency aid spending, lower house speaker Rodrigo Maia said on Friday.

Senator Marcio Bittar said that he would no longer present his proposal for debate until next year due to its “complexity.”

Speaking at a ceremony in Brasilia on Friday evening, a visibly irritated Maia accused the government of trying to undermine the chamber, which is raising political and financial risks for the country at a delicate juncture.

“Now, once again, with Marcio Bittar’s decision not to propose the emergency bill … we are going to enter a huge fiscal abyss next year, because what (Economy Minister) Paulo Guedes said was emergency, turns out is not emergency,” Maia said.

The emergency constitutional amendment would be similar to the ‘State of Calamity’ bill passed at the onset of the COVID-19 pandemic this year, which paved the way for huge emergency spending that circumvented the government’s strict fiscal rules.

The emergency income transfer program that gave a lifeline to around 30 million of Brazil’s poorest families this year as the economy tipped into deep recession expires on December 31st.

There is growing political pressure for some form of aid to continue next year, but public finances are so stretched it is unclear how it would be funded.

Maia also said a constitutional tax reform bill in congress is ready but will not be voted on, because the government does not want it to be seen as a victory for Maia.

“Tax reform is ready. It has the votes. But it will not be voted on because it is Rodrigo Maia’s tax reform, that’s all,” he said.

Economy Minister Paulo Guedes said on Friday that there has been some “difficulty” in making progress on tax reform.

For the full picture, see our Brazil Tax Reform: Complete Guide.

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