Brazil Congress Overturns Bolsonaro Tax Veto in Jab at Austerity

Brazil’s congress overturned a presidential veto on corporate payroll tax reductions, further straining the nation’s budget amid unprecedented stimulus spending.

In a joint session of the lower house and the senate on Wednesday, lawmakers voted against President Jair Bolsonaro’s veto, thus extending the tax cuts through 2021 for sectors including construction and transportation at a cost of 6 billion reais ($1.1 billion). During the debate, they said allowing the benefit to expire now would have caused lay-offs in a country that’s reeling from the coronavirus.

Allowing millions of people to lose their jobs amid record-high unemployment “would have been insane and a severe blow to the country’s economy,” Junior Bozzella, deputy-leader of the right-wing PSL party in the lower house, said in an interview.

Brazil Congress Overturns Bolsonaro Tax Veto in Jab at Austerity

Bolsonaro’s administration is spending billions of dollars this year in measures designed to help families and companies during the pandemic, including job protection programs and monthly stipends for informal workers. While Economy Minister Paulo Guedes has promised to quickly resume austerity, investors fear part of the stimulus may be extended into 2021. After the veto, officials will likely have to cut other expenses or risk breaking Brazil’s public spending cap rule.

The vote is also another blow for Guedes’ plan to implement broad payroll tax cuts funded by a new levy on financial transactions that has met with great resistance from lawmakers. “I want to relieve payroll taxes for all sectors permanently, and not only payroll taxes for 17 sectors for another year,” he said last month.

Brazil Congress Overturns Bolsonaro Tax Veto in Jab at Austerity

Thorny Issue

Prospects of new taxes have become a thorny issue in Brazil’s congress, especially as legislators focus on this month’s municipal elections. Lawmakers have also temporarily halted discussions on a broader tax reform.

At the same time, Wednesday’s vote creates an additional hurdle for Bolsonaro’s plans to introduce a new social program next year. Government leaders in congress were aware of opposition to the veto, and they decided to stand down in order to avoid jeopardizing the advance of other key reform bills.

“There was a broad debate with leaders from all parties,” government congressional leader Eduardo Gomes said in an interview with local television late on Tuesday. “We advanced in measures that seek to free congress to vote on reforms.”

Latin America’s largest economy is facing numerous challenges as it recovers from a virus-driven downturn. Consumer confidence levels are still below pre-pandemic levels, the services sector is struggling and unemployment has surged to a record and may rise further as job seekers return to the labor market.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.