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Bolsonaro Hands Congress Bills to Tackle Brazil’s Budget Woes

Bolsonaro Hands Congress Bills to Tackle Brazil’s Budget Woes

(Bloomberg) --

President Jair Bolsonaro is seeking to exert greater control over a federal budget that’s almost totally earmarked by mandatory expenses as his administration picks new legislative priorities after the approval of a sweeping pension reform last month.

Bolsonaro Hands Congress Bills to Tackle Brazil’s Budget Woes

The president, along with Economy Minister Paulo Guedes, headed to Congress on Tuesday to personally deliver a series of bills designed to help government officials abide by a constitutional spending cap and the so-called “golden rule” establishing that budget deficits must not exceed investment. The package also includes proposals to cut payroll expenditure by restructuring the careers of public servants.

Bolsonaro and Guedes were received by Lower House Speaker Rodrigo Maia and Senate President Davi Alcolumbre, from whom they heard that lawmakers are unlikely to accept any reduction in social spending now. Bolsonaro said he hopes the bills will be approved by mid-2020.

The proposals mean that, at least for now, efforts to reform Brazil’s byzantine tax system may be left on the back burner. Guedes’ plan to simplify the tax code suffered a blow when Bolsonaro rejected the reintroduction of a tax on financial transactions that was the cornerstone of the proposal. The economic team is now reworking its offering before sending it to Congress, possibly over the next few weeks.

It’s unclear how much traction those bills will get in parliament, where lawmakers are already discussing alternative tax reform proposals. Recent turmoil in Bolsonaro’s own party also raises questions about the ruling coalition’s ability to push legislation through the lower house and the Senate.

“Even as the approval of pension reform may have evidenced Congress’ reformist side, the new batch of measures will demand a similar amount of negotiation,” XP analysts wrote in a note to clients.

Here’s an outline of the main proposals prepared by Guedes’ team:

Federative Pact

  • This project would establish a fiscal council comprising the president, the head of the supreme court, the Senate president, the lower house speaker, the chief of the audit court and some state governors. The council’s goal would be to oversee the budgets of the federal government, states and municipalities. The bill also seeks to free up the public budget to give the government more freedom to allocate revenue. More than 90% of the primary federal spending, or 1.4 trillion reais (not including interest payments) is mandatory.

Emergency Amendment

  • This mechanism would make it easier for elected officials to automatically trigger austerity measures that ensure compliance with the spending cap and the golden rule. The idea is to create a legal framework allowing federal and state governments as well as municipalities to reduce salaries and working hours of public servants in order to cut expenses in case of a budget emergency.

Mansueto Plan

  • The Economy Ministry has already sent to Congress a bill to help state governments in financial crisis to gain access to bank loans guaranteed by the federal government. It also gives two more years for state governments to comply with the spending cap. In exchange, states have to adopt fiscal measures to reduce expenditure and increase revenue. The program was named after Treasury Secretary Mansueto Almeida.

Administrative Reform

  • This plan reviews the careers of public workers. The idea is to increase the number of years a public servant takes to reach top posts in their career and lower the starting salary. For some careers, there will be a change in the employment rules for new servants. Evaluation rules for promotions will also be reviewed.

Funds

  • This plan will review and possibly extinguish most of the 260 government funds -- including those mandated by the constitution -- that were designed to finance development projects in poor areas of the country.

--With assistance from Mario Sergio Lima.

To contact the reporters on this story: Martha Beck in Brasilia at mbeck96@bloomberg.net;Simone Iglesias in Brasília at spiglesias@bloomberg.net

To contact the editors responsible for this story: Walter Brandimarte at wbrandimarte@bloomberg.net, Maria Luiza Rabello

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