BLOOMBERG – A constitutional reform proposal tabled in Congress late Monday aims for the new government to exempt the equivalent of 175 billion reais ($32.6 billion) a year from the country’s tax ceiling, to keep it until 2026 spend on social programs.
The bill officially presented by Senator Marcelo Castro It’s the first salvo in what is expected to be a lengthy political debate over how much the government, which takes office on January 1, can spend to fulfill its campaign promises.
President-elect Luiz Inácio Lula da Silva is in Brasilia this week to begin negotiations with lawmakers on the law. What is at stake is breaching the main containment barrier of Brazilian fiscal policy: a norm that limits growth in public spending to the inflation rate of the previous year.
Lula’s team on Tuesday collected the necessary number of signatures to start the Senate legislative process. “We are negotiating to approve the constitutional amendment as soon as possible,” Castro wrote in a statement.
Brazilian assets rose on Tuesday amid a rally in global markets and as traders speculated the law could be watered down in Congress.
Although Lula’s team needs the additional resources to ensure it can fund its flagship welfare program, Bolsa Família, some lawmakers are reluctant to back the proposal for fear of jeopardizing Brazil’s fiscal position.. Investors are also watching the law closely as it is likely to affect the country’s debt sustainability and hence asset valuations.
Although the bill provides for four years of spending above the budget limit, “everything can change in Congress during the negotiations,” Castro told reporters in Brasilia after presenting the proposal. “What we need is to find a consensus on time and value.”
To pass, the project needs a broad consensus in Congress, that is, 308 of the 513 votes in the lower house and 45 votes from 81 senators. Lula’s team will need to be smart enough to secure that endorsement in two rounds of voting before the December 22 deadline. However, some lawmakers are reluctant to allow Lula’s government to spend beyond the norm for her full four-year term and would prefer a shorter term.
Although the bill introduced on Monday does not include a specific number to be exempt from the spending limit, the Bolsa Família program, which Lula’s team hopes to keep past the limit, costs 175 billion reais ($32.6 billion) a year.
Lindbergh Farias, a key Lula ally, previously told Bloomberg News that the new government wants to exempt at least 151 billion reais ($28.6 billion) a year from the border and that the transition team will consider proceeding with transitional measures that require less support in Congress if the proposed constitutional amendment does not go ahead.
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