June 10, 2021

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BRAZIL: Congressional agenda beyond Covid-19 inquiry faces major challenges

BY Mario Marconini

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Report Contents

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( 4 mins)
  • The Senate inquiry into Covid-19 is monopolizing media attention but Congress is seeking a feasible agenda.
  • The reform agenda has been reduced but taxation and administration are still priorities.
  • The Eletrobras privatization faces hurdles and may miss an important deadline.

Congress is attempting to show that there is life after (or during) the Senate inquiry (CPI) that started on 29 April into the handling of the Covid-19 pandemic. The CPI continues to generate media attention and social media traffic. The government is trying to leverage bullish news about GDP growth in 2021 (now above 4%) against what it characterizes as a “politically-motivated” inquiry. The evidence against the government in the CPI is all publicly available but the sight of senators chastising or defending the government continues to produce high cable-TV viewer ratings. To regain lost popularity, President Jair Bolsonaro is betting on a combination of good economic news with a lesser focus on the pandemic as vaccine supplies increase. For the private sector, Bolsonaro is rekindling support for the “reform agenda” and renewed attempts at privatization.

Taxation

On taxation, House Speaker Arthur Lira has not yet established a special committee to look at existing draft bill 3,887 that would create a new value- added-tax (VAT), the goods and services contribution or CBS, by unifying two social contributions (PIS and COFINS) . This move has been generally perceived as the starting point for a new approach to simplifying the taxation regime in Brazil – the first part of the “slicing” of the tax reform process, according to Economy Minister Paulo Guedes. Congress is no longer considering two proposals for a fully-fledged reform where all federal and sub-federal taxes would morph into one VAT (PEC45 at the House and PEC110 at Senate). The House now is to focus on a simple- majority-approval of a CBS, followed by a yet-undetermined treatment of the industrial tax (IPI), income tax and dividends. The Senate was entrusted with the treatment of the state-level ICMS and the municipal-level ISS – a much taller order since it would still require a three-fifths-majority-approval constitutional amendment.

The administrative agenda

There is also the so-called administrative agenda. A special committee was created to discuss a proposal for a constitutional amendment that would alter rules for future public servants. The text in question was sent by the government to the House in September 2020 but has been inactive since. The new rapporteur, representative Arthur de Oliveira Maia from the center-right Democrats (DEM), has promptly declared his intention to include both the Legislative and Judiciary branches in addition to the military in the reform – a move that would result in additional savings of BRL 31.4 bn (USD 6.2bn) over ten years according to recent studies. Maia has even drawn a distinction between acquired and expected rights in an attempt to include current public servants in the reform as well by preserving only rights already executed. Maia should not go very far with such intentions if the idea is to arrive at an acceptable text for the corresponding constitutional amendment.

Privatization of Eletrobras

On privatizations, there was real movement with the approval at the House on 20 May of executive order (EO) 1,031/2021 for the privatization of power utility giant Eletrobras. The EO would allow the issuance of new Eletrobras shares for purchases by non-governmental investors, resulting in the loss of state control of the company (the state would still have a golden share with veto power at the general assembly level). The House draft has met with considerable resistance in the Senate, however, for allegedly increasing consumer energy bills by 20% and adding BRL 67bn (USD 13.2bn) in additional costs (taxes and others) for the sector. It is unlikely that the EO will be approved by the 22 June deadline if the Senate sends the draft back to the House with too many adjustments. A coalition of the electric power industry, the “Union for Energy”, will not settle for less, however.


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