Fiscal package is defined, but wording adjustments are missing; ad must be 4th or 5th

The hammer has already been hammered, the edges have already been trimmed with the ministries and the president Luiz Inácio Lula da Silva (PT) has already given the go-ahead. Even so, the package with cost-cutting measures, which was expected for this Monday (25) or Tuesday (26), should only be announced by the economic team on Wednesday (27) or Thursday (28).

The information is not officially confirmed by the Ministry of Finance, but the report from InfoMoney found that everything is heading towards the announcement of fiscal measures by the end of this week.

Sources who met with members of the government’s core economic team today stated that the package has already been defined, but is undergoing “final drafting adjustments”. The announcement on Tuesday (26), as expected by economic agents, has little chance of happening. The announcement, however, is imminent and shouldn’t take long.

The predominant assessment in Planalto is that the government has already wasted too much time discussing the issue and needs to announce the measures.

In the early evening of this Monday, in Brasília (DF), after a series of meetings throughout the day, the Minister of Finance, Fernando Haddad (PT) confirmed that the proposals should be forwarded to the National Congress this week. The head of the economic team, however, did not set a date for the announcement.

“We have reached an understanding within the government, the president has already decided the last issues. We must speak to the presidents of both Houses, as I had announced, speak to the leaders and then we will move on. (Shipping) It depends on the Palace (from Planalto) contact the Senate and Chamber. But we are already prepared, everything is written in the Civil House. We will definitely send it this week. Now, the day, the time, will depend more on Congress than on us”, Haddad told journalists.

Fernando Haddad also confirmed that the government will send a Proposed Amendment to the Constitution (PEC) and a Complementary Bill (PLC) with fiscal measures to Parliament.

“Yes (it will be a PEC and a PLC). The idea is to send as few diplomas as possible”, said Haddad, who expressed optimism with possible approval by Congress in 2024.

“I have hope (to approve this year). This is the intention because there is at least one PEC that must be voted on this year, for example the extension of the DRU (Decoupling of Union Revenues). Maybe we will take advantage of this PEC”, explained the minister.

In this Monday’s interview, Haddad also said that the future president of the Central Bank (BC), Gabriel Galípolo, also participated in the meeting with Lula about the fiscal package.

“Gabriel participated in the meeting with the president at the president’s request. He wanted to hear Gabriel’s perception of the subjects, how he perceived what was going to be announced. He participated in the entire meeting,” said Haddad.

Last Thursday (21), the minister had told journalists that this Monday morning’s meeting would finalize the package discussed by the government for weeks.

“On Monday morning, we will draft the acts that were drafted by the Civil House. Let’s hit him (Lula) the drafting of one or another detail, including the agreement that was made with the Defense, which he only learned about informally from me today. With the end of Monday’s meeting, we will be ready to release. The decision whether we will do this on Monday or Tuesday is a decision that the communication will make, but the acts have already been drafted”, said the head of the economic team, at the time.

Still according to Haddad, most of the measures have already been shared with the presidents of the Chamber of Deputies, Arthur Lira (PP-AL)and the Senate, Rodrigo Pacheco (PSD-MG).

“We have already advanced some measures for some parliamentarians, some leaders, for the presidents of both Houses themselves. He (tax package) is enough to reinforce the fiscal framework, which has an excellent rule for us to aim for budget balance and work on the debt trajectory, the resumption at some point of the fall in interest rates, so that we have the peace of mind to continue growing with inflation within the target , aiming at the center”, stated the Minister of Finance, last week.

Comings and goings

Discussions about the Lula government’s spending cut package have already entered their fifth week, without any announcement so far.

The week before last, Lula had practically daily meetings to discuss the matter. At the time, the president asked Haddad to postpone an official trip to Europe to remain in Brasília (DF) and participate in meetings on the fiscal package with other ministries.

One of the alternatives on the table is to “redesign” the salary bonus (a type of 13th salary paid to formal workers who receive up to two minimum wages).

Government members estimate that the benefit – which will cost R$30.7 billion in 2025 – could be more concentrated on the poorest. According to current rules, an increasing number of people have benefited from the bonus, which is driven by the policy of increasing the minimum wage.

On the other hand, the decoupling of social benefits, such as the bonus and the Continuous Payment Benefit (BPC), in relation to the minimum wage, has been ruled out by the government.

One of the pillars of the measures presented by the Ministry of Finance to Lula will be the adoption of instruments that help to optimize the review of social policies, minimizing possible irregularities. One of the ideas raised is the requirement for biometrics.

Another important step would be to expand the target audience for the review, previously restricted to people whose registration is more than 48 months out of date. With the expansion, this time would be reduced to 24 months.

Initial resistance

Ministers who command portfolios linked to the social area, such as Wellington Dias (Social Assistance), Carlos Lupi (Social Security) and Luiz Marinho (Work) were among those who strongly resisted fiscal adjustment. But, in the end, Haddad and the economic team won the fight.

Since the end of October, Marinho publicly raised his tone against the economic team and said that he had not been informed about any changes to unemployment insurance, salary bonuses and the 40% fine for unfair dismissal of workers.

“If no one talked to me, it doesn’t exist (debate about these supposed changes). I am responsible for Labor and Employment. Unless the government fires me”, said Marinho.

Lupi, in turn, also threatened to leave the government if the cost-cutting measures affect social security benefits that, in his view, would be “acquired rights” – or change the policy of increasing the minimum wage.

“Our biggest challenge is fiscal balance. How can we do this given the misery of the Brazilian people? I want to discuss taxation of great fortunes. Haddad is even proposing this. Those who have to donate something in this process are those who have a lot, not those who have nothing. How are you going to get Social Security?” asked Lupi.

“The average salary for people is R$1,860. What am I going to do with this? Take away acquired rights? Don’t count on me. Will I lower my salary? Don’t count on me. I will no longer have any real gain (at minimum wage)? Don’t count on me. If that happens, I can’t stay in government. I don’t think the government will do that. We have to charge large debtors, tax evasion and undue exemptions”, stated the minister.

Expectations from market analysts

According to the 59th round of the Power Barometersurvey carried out by InfoMoney with some of the main consultancies and political analysts operating in Brazil, the projections of 16 of the 17 experts consulted for the fiscal impact of the measures range from R$10 billion to R$50 billion — a level of dispersion that indicates the degree of uncertainty at the moment .

The survey shows that the average bet by political analysts was R$ 29.94 billion in savings generated with possible actions not yet announced. The number is practically the same as the median: R$30 billion. One of the participating consultancies chose not to answer this question.

The financial market anxiously awaits the presentation of a package of expense control measures promised by the federal government for after the municipal elections. The idea is that the set of actions will help point to the sustainability of the new fiscal framework and reduce the level of fiscal skepticism among economic agents observed in recent weeks.

The Executive Branch must focus on initiatives that contain the evolution of expenditures classified as mandatory, which account for more than 90% of the Federal Budget and each year grow above the limit of 2.5% real established by the fiscal framework (which requires making increasingly greater cuts in discretionary spending, which includes public investments).