This Friday’s meeting (8) between President Luiz Inácio Lula da Silva (PT), the economic team and ministers from the areas affected by the spending cut package ended without an agreement, after three rounds of negotiations.
The economic team proposes a cut of R$50 billion in the government’s mandatory expenses, in order to maintain the fiscal target – zeroing the public account deficit in 2025.
The result reflects yet another strain on the economic team and the Minister of Finance, Fernando Haddad, who has been striving to maintain the credibility of the fiscal framework within the financial market.
Haddad did not speak to the press after the meeting and, according to the press office, left for São Paulo. He had postponed his return to the capital of São Paulo to participate in the meeting, which was attended by the Treasury’s “shock troops”.
The secretaries of the portfolio Dario Durigan (executive), Guilherme Mello (Economic Policy), Robinson Barreirinhas (Federal Revenue) and Marcos Pinto (Economic Reforms) also participated.
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- Dollar rises and stock market falls with uncertainty about government spending cuts
The expectation was to announce the package this week
Initially, Haddad’s expectation was that the announcement of the spending package would come out this week. On Tuesday (05), the minister said that “things were advanced from a technical point of view”; the next day, there were only “two details” left to be agreed upon.
Sources linked to the Palácio do Planalto admitted that President Lula had already been convinced of the need to deliver a fiscal adjustment package to calm the expectations of the financial market, which has reflected investors’ lack of confidence in meeting the fiscal target.
The news had a good impact, with the dollar falling on Wednesday (6). The following day, however, it rose again with the postponement of the package until next week, announced by Haddad.
This Friday, the impasse once again weighed on the Brazilian stock market reference index. The Ibovespa fell 1.43%, to 127,829.8 points, reaching 126,972.83 points at its lowest point, also influenced by external factors. During the week, it recorded a loss of 0.23%. The dollar rose 1.15%, closing at R$5.74.
SEE ALSO:
- Still without an agreement, Lula again calls on ministers who will be affected by the cuts
Deadlock over spending cuts between social department departments
The announcement has been resisted by social ministers, who want to maintain the benefits and budgets of their portfolios. The economic team proposed the decoupling of social benefits, such as the bonus and the BPC (Continuous Payment Benefit), in relation to the minimum wage. The idea was considered, but press investigations show that it has already been discarded by the government.
The framing of health and education spending floors within the tax framework, in turn, has always been viewed with reservations and should not happen.
The idea of redesigning the salary bonus, paid once a year to workers with a formal contract who earn up to two minimum wages, persists.
Lula had also discarded measures in the policy of increasing the minimum wage above inflation, which was resumed during his government. But it can limit the real gain from the minimum wage to 2.5%, the maximum correction of the framework’s fiscal rule.
The package’s measures will be sent via two Complementary Amendment Proposals (PECs) to Congress. To do so, they will have to be assessed by the presidents of the Chamber, Arthur Lira (PP-AL), and the Senate, Rodrigo Pacheco (PSD-MG).
