February 20, 2020

BRAZIL: Renewed bickering still points to tax reform as last resort

BY Mario Marconini

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( 3 mins)

Tensions between Congress and the Jair Bolsonaro government have increased significantly this week as both sides jostle for command on a number of policy fronts. Priorities across the two branches of government remain unclear and unaligned but more and more the tax reform seems to be the most likely survivor in a list that also includes the administrative reform and the “Emergency PEC” (proposal for a constitutional amendment). If last week, a tax overhaul stood out as the main game in town due to blunders and irritants with the lack of progress on the administrative reform, this week it remains the most feasible due to bickering and headbanging across branches of government over the control of the federal budget.

The latest in a series of verbal clashes was a comment caught on video by the Institutional Security Cabinet (GSI) Minister, General Augusto Heleno, the closest high-level official to the president, in which he accused parliamentarians of blackmailing the government by threatening to override a presidential veto to parts of the draft Annual Budget Law (PLOA) that would effectively render Congress oversight over more than 60% of the budget. Both Senate Chairman David Alcolumbre and House Speaker Rodrigo Maia reacted strongly against what they considered a frontal attack against Congress and a show of “radical ideology”. To make matters worse, Heleno’s outburst came at a time when an agreement had supposedly been reached between the parties restoring some of the government’s previous control.

Economy Minister Paulo Guedes, who despite frustrations usually has managed to keep a safe distance from the political horn-locking, did not come out unscathed this time. In fact, the common perception in Congress is that he has become a card-carrying member of the so-called “ideological wing” of the government that sides with the president in disdaining dealings with the legislature. Rodrigo Maia, a former Guedes student and first-order ally on economic reforms, reportedly blames Guedes for the perceived backtracking over the budget. Moreover, lack of leadership by the government on the administrative reform where its engagement is essential to share the burden of a politically challenging initiative has also been attributed to Guedes’ alleged disagreement with the president over whether to limit the government’s proposal for new public servants. Noise about Guedes is by itself sufficient to shake the foundations of the government and significantly increase uncertainty.

It is likely that an agreement is indeed reached and confirmed on the so-called “mandatory budget”; that some form of administrative reform proposal be sent to Congress; and even that aspects of the Emergency PEC are addressed in the short term. However, the tax reform remains the only feasible initiative for effective completion by mid-year when all politics will turn to the October municipal elections. Proof of that assumption is that the Senate and the House reached an agreement yesterday, 19 February, to set up a joint committee on tax reform. They did so in the absence of the government, which is itself a statement of independence and determination by Congress not to allow all serious economic matters to be thrown out with the bath water.

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