Brazil’s new fiscal plan poses the first major test of President Luiz Inacio Lula da Silva’s strength in the the country’s divided congress, where he is still struggling to cement a base of support.
(Bloomberg) — Brazil’s new fiscal plan poses the first major test of President Luiz Inacio Lula da Silva’s strength in the the country’s divided congress, where he is still struggling to cement a base of support.
Approval of the framework is crucial to Lula’s presidency. Since taking office in January, the leftist leader has sought to calm market anxiety about his government’s spending plans as he tries to kick-start a sluggish economy and deliver on his campaign promises.
The initial proposal succeeded in boosting investor confidence after its release in late March. But last-minute changes to the plan before it arrived in congress on Tuesday resuscitated some worries. Markets and the central bank, which much to Lula’s chagrin has kept the country’s benchmark interest rate at a six-year high as it battles inflation, will be closely following the proceedings.
Read More: Lula Delivers Plan to Rein In Debt Amid Revenue Uncertainty
The plan needs 257 votes to pass the 513-member lower house, and 41 of the Senate’s 81 lawmakers to approve as well. Lower house Speaker Arthur Lira has said he hopes to push the bill through his chamber by early May, but other lawmakers are skeptical it will move that fast.
Here are five things to watch as the process unfolds.
Rapporteur
As expected, Lira on Thursday selected congressman Claudio Cajado to oversee the process and make changes to the fiscal plan as the bill’s rapporteur. Cajado will play an outsize role in shaping the final version of the proposal, and in determining how closely it hews to Finance Minister Fernando Haddad’s plan.
Cajado served as the deputy leader of former President Jair Bolsonaro’s coalition in the lower house, but he also has close ties to Lula’s Workers’ Party in his home state.
Cajado didn’t immediately respond to a request for comment. A spokesperson for the government’s Institutional Relations Ministry said that Lula’s team doesn’t view Cajado as a Bolsonaro ally, and that they believe he is someone “who conveys responsibility and tranquility to the market.”
Increasing revenues
Leaders of some of the biggest parties in congress want to know how Haddad plans to increase government revenues by 150 billion reais ($29.6 billion) in order to make his fiscal plan viable. Before the plan was sent to congress, Lula decided to scrap a proposal that would ensure that small purchases made abroad through popular websites like Shein or Shopee are taxed according to the law, a plan the government estimated would have generated about 40 billion reais in extra revenue.
Read More: Brazil Could Boost Revenue by $59 Billion Without Raising Taxes
“We want to know where the 150 billion reais will come from without reaching the population’s pocket, raising taxes or penalizing states and municipalities,” lawmaker Altineu Cortes said in an interview. Cortes is the leader of Bolsonaro’s Liberal Party, which holds 99 seats in the lower house.
Budget targets
Party leaders also want a punishment if the government fails to meet its primary budget target. Haddad’s proposal only provides that, when this happens, the president sends a message to congress with the reasons for the non-compliance and the corrective measures the government plans to take.
Congressman Pedro Paulo, who presented his own proposal for a new fiscal outline, expressed concerns that the plan doesn’t do enough to ensure the government hits its targets.
“We are returning to the world before the fiscal responsibility law, when a collection and spending target was announced without any commitment to the goal,” Paulo said in a statement.
Friendly fire
As the government tries to shore up congressional support, it also faces questions about whether the Workers’ Party will line up behind the fiscal plan. On Thursday, the party released a statement supporting the framework, but it is still far from an internal consensus.
Read More: Brazil’s Workers Party Leader Pledges Support to Fiscal Bill
Workers’ Party members have suggested changes “that will be presented,” representative Lindbergh Farias, the deputy leader of the government’s congressional coalition, told reporters Wednesday. Some inside the party, Farias said, fear that the framework’s constraints on spending are too aggressive and could limit economic growth.
The calendar
Lira has expressed confidence that the proposal will pass the lower house, but not even his allies believe his goal of voting on the bill by May 10 is feasible.
“I think time is very short, and there are things that need to be perfected,” said Andre Fufuca, the leader of Lira’s party, which is part of a coalition of 173 lawmakers in the lower house.
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